I wanted to discuss a topic important to me but also one that was important to all of us living in a drought stricken part of the United States. I was shocked when I skimmed through the blog titles as far back as 2011 and didn’t find anything posted on this topic. The economics surrounding the water shortages in the Colorado River basin are far reaching and complicated yet fascinating when you consider just the supply and demand aspects of this issue.
The quantity of water demanded continues to increase with population growth and farming needs, even though new technology has helped to use water more efficiently. During drought years the quantity demanded is higher than the quantity supplied creating a shortage, regardless of price. The fact that Mother Nature is the one primary supplier of fresh water and it’s difficult to predict her annual supply; I wonder how this affects the various associated economies. Although I think dams & reservoirs have been societies way of minimizing shifts in the supply curve, with the sustained drought mother nature has become an unpredictable supply shifter. It’s the supply side of this relationship I find so intriguing although it appears rather simple.
A conference was held in March 2015 in Park City Utah to discuss how managers of water utilities can maintain a healthy bottom line during these times of shortages. They’re looking at ways of replacing the supply provided by snowpack while others suggest aggressive pricing and new conservation practices. They mention using block pricing to help sustainability with less water. I personally wonder if a peak-load pricing strategy might help.
I’m interested to hear what others have to say about this topic, especially Dr. Tufte because I’m sure this topic is not new in his world of economics.