Charles W. Howe

The Economic Impacts of Agriculture-to-Urban Water Transfers on the Area of Origin: A Case Study of the Arkansas River Valley in Colorado

The development of new water supplies has grown increasingly costly, both in financial and environmental terms. Public values related to instream flows, preservation of natural areas, and wildlife have increased sharply relative to the values of traditional water uses. In such a setting, reallocation of existing supplies becomes increasingly attractive, and water transfers have been hailed as the solution to western U.S. water shortages (e.g., Anderson, Saliba and Bush, Howe et al). A major U.S. Geological Survey-funded study (MacDonnell et al) has found frequent water transfers in several western states (Colorado, New Mexico, and Utah) but infrequent transfers in other states (e.g., California and Wyoming), the frequency being strongly affected by the institutional structure for effecting transfers and the pressure on water supplies. A glance at water use data (U.S. Geological Survey) shows that 80% of all water diversions and nearly 90% of all water consumption in the western United States occur in irrigated agriculture, strongly suggesting that small percentage reallocations from agricultural to nonagricultural uses could satisfy growing nonagricultural water demands for decades.

Taxesversus tradable discharge permits: A review in the light of the U.S. and European experience

The U.S. and West European environmental protection programs have incorporated different economic instruments for controlling pollution. The U.S. has made extensive use of tradable permits of several forms but has never used direct pollution taxes. The countries of the European Community have long used an array of pollution taxes but have never used tradable permits. A review and critique of these experiences and an analysis of the attributes of taxes and tradable permits seeks identify the strengths and weaknesses of each instrument and to provide guidelines for the successful implementation of each system.

Policy issues and institutional impediments in the management of groundwater: lessons from case studies

Many opportunities exist to take advantage of integrated surface water–groundwater management with consequent resource and investment savings. In inappropriate legal and administrative settings, groundwater becomes an open-access resource leading to excessive contemporary and inter-temporal externalities. Several policy instruments have been used to correct these externalities: limits in well spacing and capacities, pumping taxes and tradable pumping permits. Urban–agricultural competition for limited groundwater need not result in crises for either sector if these instruments are used to mediate the competition. In the case of non-renewable stocks of groundwater, rates of economic and demographic development should be planned in keeping with long-term criteria to avoid overly rapid exploitation of the resource, non-sustainable population levels and inappropriate investment in infrastructure. Island states and coastal areas have special problems related to saltwater intrusion and coastal subsidence that can be mitigated if not eliminated through the use of economic and physical measures. Five brief case studies illustrate these points.

The Functions, Impacts and Effectiveness of Water Pricing: Evidence from the United States and Canada

The paper analyses what is considered to be different ‘prices’ of water: those which depend on the services that are provided, on the revenues structures, and on the types of water markets to which the users may have access to. Conflicting roles of water pricing are also discussed, like the validity of the arguments based on economic efficiency; the generation of adequate revenues for operation, maintenance and expansion of the water system; and the ‘equitable’ treatment towards water users. Water pricing case studies in United States and Canada are presented.

The interstate river compact: Incentives for noncompliance

Twenty-one western United States rivers are governed by interstate compacts. This paper examines the issue of compliance with interstate river compacts in the western United States and some of the factors influencing compact compliance. Theoretical arguments and empirical evidence presented in this paper suggest that upper basin states governed by interstate compacts with percentage delivery rules are more likely to comply with compact requirements than states whose rivers are governed by fixed delivery rules. Evidence indicates that both the frequency and level of noncompliance tend to be larger under a fixed allocation rule. Under such a rule the upper basin state bears a greater share of a shortage and experiences greater variability so it would have a greater incentive to cheat. A comparative study of the South Platte and La Plata Rivers is consistent with this hypothesis. Given the large demands imposed on many western United States rivers, our analysis suggests that compliance analysis is likely to be an important component of interstate negotiations and that administration of interstate compacts will become increasingly important.

The Interstate River Compact as a Water Allocation Mechanism: Efficiency Aspects

Interstate river compacts are widely used to allocate water among riparian states. Twenty-one compacts are currently in force in the western United States, and these compacts are mostly of two types: those that allocate a fixed amount or flow of water to individual states; and those that allocate percentages of available water to the riparian states. This study compares the performance of the two resulting allocations with that resulting from basin-wide optimization without compact constraints. While widely varying hydrologic and economic characteristics of river basins create a large set of possible outcomes, a range of stylized case studies indicates that percentage compacts are likely to generate greater net benefits and to result in more equitable risk-sharing than fixed compacts under many circumstances. In light of recent compact negotiations in the southeastern United States, it is recommended that efficiency analyses under present and future conditions be made a part of all compact negotiations. Copyright 2000, Oxford University Press.

Inefficiencies in water project design and operation in the third world: An economic perspective

Water projects in less developed countries (LDCs) frequently are poorly operated and maintained. As a result, project benefits and development impacts fall short of plans. The problems begin in the project identification, design, and construction stages: donor and host country biases lead to inappropriate projects, unsustainable technologies, and shoddy construction. Later operation and maintenance are then difficult or impossible. Causal factors include donor desire to build monuments and sell technology, provision of excessive capital to favored sectors or institutions, and an unwillingness to require a reasonable quid pro quo from the host country. Host country factors include excessive administrative centralization, lack of rewards for good operation and maintenance, and widespread corruption in forms that seriously distort allocative efficiency. Until individual actors on both sides can be motivated to pursue the long-run good of the LDC, Third World water projects will continue to have low or negative net payoffs.

Water Markets in Colorado: Past Performance and Needed Changes

The evolution of water law provides a fascinating example of the responses of law to changing social and economic conditions. xcScott and Coustalin 1995 and xcMiller 1996 have provided the details of water law change from Roman times to the 20th century. The law of prior occupancy (an early version of the priority doctrine), wherein the earliest water users had first call on available water, was adopted in England from Roman Law. At the start of the industrial revolution, it became clear that these historical uses were preventing water access for the newer, more technical industries. To accommodate these needs, a “reasonable use” doctrine evolved, allowing new activities access as long as they did not “unreasonably” reduce availability for others or “unreasonably” degrade water quality. This was the “riparian doctrine” of English Common Law that was brought to the eastern U.S. by the English settlers. Until the post World War II period, the doctrine served these well-watered regions well enough, although “reasonable use” remained vague and ultimately had to be defined in court.

Environmental problems and policy in the Single European Market

The paper analyzes the direct and indirect environmental impacts of the completion of the Single European Market, both internally and with respect to the Rest of the World. Moreover, the principles of environmental policy are described. The main conclusion is that if the European Community and the member states develop effective and efficient policy instruments the positive effects of the completion of the Single Market could substantially outweigh the negative impacts.

Economic, Legal, and Hydrologic Dimensions of Potential Interstate Water Markets

The topic of interstate water sales, leases, or other forms of transfer has attracted great public interest recently. Private parties have proposed selling water claimed under Colorado state law to parties in other states. Other interstate lease or sale proposals have arisen in Utah, Montana, and South Dakota. These proposals have upset an equilibrium established by interstate compacts which allocated the waters of various western rivers to the riparian states. It has always been assumed that these allocations were fixed and could not be amended without unanimous consent nor