6 ms·

When people use a resource, they should pay more than just the cost of extracting it. They should also pay for its underlying value, which bears some relation

When people use a resource, they should pay more than just the cost of extracting it. They should also pay for its underlying value, which bears some relation to the price you would pay if the resource were no longer available. Such prices would signal to users the actual scarcity of the resource, giving them incentive to reduce waste and find alternatives. It would also spur development of desalination and other technologies. That is one reason public ownership of a resource doesn't work very well. And shared private ownership doesn't either, if you can use as much as you want. These aren't really different. Just the size of the group. But both could work if everybody pays a market price for what they use and owners/taxpayers get paid for their share of what is used.

cardamomo 10y ago
The question is, can we arrive at a system and culture of paying for the "underlying value" of a resource, as you put it, before those resources no longer exist?
- stretchwithme 10y ago
  Only if enough people understand the reasons for doing so. And if we don't, the change will be forced upon us and at higher cost with more disruption and risk. But that's true of most of the problems we fail to understand/choose to ignore.
ehnto 10y ago
I don't disagree, but it is still a scary prospect. Humans need water. We don't need gas, or oil, heck we can even survive without electricity. We can make do. But we die without water, and it is worrying to imagine a scenario where some people can no longer afford water because the price went up due to any number of factors. The price of a resource fluctuates for reasons not always related to the actual resources inherent cost and demand dynamic, and private companies don't have the same incentives as councils or government.
- cardamomo 10y ago
  To your point, recent reporting by the New York Times has highlighted the trouble with private equity firms replacing public utilities. For example: http://www.nytimes.com/2016/12/24/business/dealbook/private-equity-water.html http://www.nytimes.com/2016/12/24/business/dealbook/private-...
- stretchwithme 10y ago
  It is because it is so vital that we should get a clear signal of its value. We should be paying for what it is worth. I don't think the supply of ground water and the demand for it vary wildly. And that is what market prices are based on. But a sudden change in prices would definitely occur when it is depleted. Rain water is a different thing. The supply varies greatly. But it is also completely renewable. Industries that use it should adapt to its potential scarcity and prices help to do that.
- stretchwithme 10y ago
  Besides, I wasn't suggesting selling off water to private companies. Only having realistic prices that communicate the actual scarcity of the resource. You can't get industry to conserve without them. Because, as you pointed out, they don't have the same incentives as governments do. And industry is the biggest user in many places.
- omginternets 10y ago
  >We don't need gas, or oil, heck we can even survive without electricity. We can make do. But we die without water I understand that this is not your primary point, and I even understand the sense in which it is true, but I think it's short-sighted. People will die without oil, electricity and silicon chips because we've come to depend on them for such things as medicine, agriculture, waste processing, etc. Things like your run-of-the-mill plastics are very much a matter of life and death.
- JumpCrisscross 10y ago
  > Humans need water Every person gets a free daily "survival" quota. Above that, you pay market. The latter subsidises the former. You pay less for your drinking water and more for your lawns and alfalfa.
blackkettle 10y ago
In economics what you are describing is typically referred to as a Negative Externality (https://en.wikipedia.org/wiki/Externality#Negative https://en.wikipedia.org/wiki/Externality#Negative). It's hard to reframe these for the obvious reason that the parties involved directly in the transaction benefit from ignoring them (at least in the short term...)
- stretchwithme 10y ago
  I think it's what they call the tragedy of the commons. Wikipedia says an externality "imposes a negative effect on an unrelated third party". For example, pollution from a coal-fired power plant that pollutes the air of people living somewhere else.
  - blackkettle 10y ago
    > imposes a negative effect on an unrelated third party yes, and i'd argue that is certainly the case here. but the two are closely related. http://ipeatunc.blogspot.com/2011/08/negative-externalities-and-tragedy-of.html http://ipeatunc.blogspot.com/2011/08/negative-externalities-... i think the above is a bit over the top for my taste: > Secondly, is it really clear that people in Bangladesh (say) have a rights claim to an climate environment that is not two or three degrees warmer than it is right now? How did they acquire this right? ... because yes, I'd say they do have that right, but the point about the expectations being tied to some kind of property rights [physical or fundamental] as a differentiating factor seems to be a strong one. here they describe the tragedy of the commons as a specific sub category of negative externality (in direct contradiction to the preceding link): http://web.mit.edu/11.203/www/econ/index.php%3Fid=14.html http://web.mit.edu/11.203/www/econ/index.php%3Fid=14.html
    - stretchwithme 10y ago
      You can argue that some ongoing tragedy of the commons also has externalities. But is there such an externality in the use of water? Is there some side effect that doesn't involve the use of water itself? Isn't the tragedy, the depletion of the supply, the problem? That isn't external.
spangry 10y ago
I don't see how it follows that "public ownership of a resource doesn't work very well". From what I understanding, you're talking about inefficient over-consumption of some resource, and suggesting price-rationing as the solution. In most cases I think you'd be correct. In the case of public ownership then, the problem isn't public ownership per se, but rather when the public (i.e. government) does not set an appropriate price for using that resource. Although economic efficiency is all well and good, it's worth remembering that there are cases where another thing should be considered: equity. While it might be 'allocatively efficient' to charge high prices for water when water is scarce, the result could very well be that rich people can still fill their swimming pools while poor people die of thirst.
- stretchwithme 10y ago
  In a market economy, people are a lot less likely to be THAT poor or to be surrounded by similarly desperately poor people unable to help them quench their thirst. In the desert of San Jose, California where I live, water costs a half cent per gallon. Even if the market price is 10 times that, a gallon of drinking water would only cost a nickel. In the US there is $300 billion a year in charitable giving. I'm not worried that no one will give free drinking water people who can't afford a nickel a day for water. In fact, there are free water fountains already. So I don't think that is a serious consideration. The problem we would help solve by adopting more market oriented prices is vastly more important than edge cases that are already handled by other efforts. As to your first point, public ownership generally does not set market prices for resources. Governments often don't even have the means to determine what the market price is. And then they don't change them in response to conditions. Or they just give them away for free, making it impossible for the private sector to compete. Free things result in greater demand and shortages. And pressure to create more of the resource to give away, more than the population would use if there were a market price. Our roads are a good example. At rush hour they are clogged with traffic. Drivers pay nothing more for traveling at 5 pm than they do at 5 am. More roads are built so more can be given away. And the additional capacity is only needed part of the time, making it even more expensive. By contrast, a road with demand-based prices would be most profitable if the price was high enough to keep too many drivers from getting on the road. Too many drivers and traffic slows to a crawl. And that happens every day. And that only happens because of the public ownership. But you are right. One can say that if the decision makers understood this issue, public ownership would not be a problem. Roads would have market prices. And they do in Singapore. It's not a democracy. The decision makers do understand the issue and you pay more to drive at rush hour there.

cardamomo 10y ago

The question is, can we arrive at a system and culture of paying for the "underlying value" of a resource, as you put it, before those resources no longer exist?

stretchwithme 10y ago
Only if enough people understand the reasons for doing so. And if we don't, the change will be forced upon us and at higher cost with more disruption and risk. But that's true of most of the problems we fail to understand/choose to ignore.

ehnto 10y ago

I don't disagree, but it is still a scary prospect. Humans need water. We don't need gas, or oil, heck we can even survive without electricity. We can make do. But we die without water, and it is worrying to imagine a scenario where some people can no longer afford water because the price went up due to any number of factors. The price of a resource fluctuates for reasons not always related to the actual resources inherent cost and demand dynamic, and private companies don't have the same incentives as councils or government.

cardamomo 10y ago
To your point, recent reporting by the New York Times has highlighted the trouble with private equity firms replacing public utilities. For example: http://www.nytimes.com/2016/12/24/business/dealbook/private-equity-water.html http://www.nytimes.com/2016/12/24/business/dealbook/private-...
stretchwithme 10y ago
It is because it is so vital that we should get a clear signal of its value. We should be paying for what it is worth. I don't think the supply of ground water and the demand for it vary wildly. And that is what market prices are based on. But a sudden change in prices would definitely occur when it is depleted. Rain water is a different thing. The supply varies greatly. But it is also completely renewable. Industries that use it should adapt to its potential scarcity and prices help to do that.
stretchwithme 10y ago
Besides, I wasn't suggesting selling off water to private companies. Only having realistic prices that communicate the actual scarcity of the resource. You can't get industry to conserve without them. Because, as you pointed out, they don't have the same incentives as governments do. And industry is the biggest user in many places.
omginternets 10y ago
>We don't need gas, or oil, heck we can even survive without electricity. We can make do. But we die without water I understand that this is not your primary point, and I even understand the sense in which it is true, but I think it's short-sighted. People will die without oil, electricity and silicon chips because we've come to depend on them for such things as medicine, agriculture, waste processing, etc. Things like your run-of-the-mill plastics are very much a matter of life and death.
JumpCrisscross 10y ago
> Humans need water Every person gets a free daily "survival" quota. Above that, you pay market. The latter subsidises the former. You pay less for your drinking water and more for your lawns and alfalfa.

blackkettle 10y ago

In economics what you are describing is typically referred to as a Negative Externality (https://en.wikipedia.org/wiki/Externality#Negative https://en.wikipedia.org/wiki/Externality#Negative). It's hard to reframe these for the obvious reason that the parties involved directly in the transaction benefit from ignoring them (at least in the short term...)

stretchwithme 10y ago
I think it's what they call the tragedy of the commons. Wikipedia says an externality "imposes a negative effect on an unrelated third party". For example, pollution from a coal-fired power plant that pollutes the air of people living somewhere else.
- blackkettle 10y ago
  > imposes a negative effect on an unrelated third party yes, and i'd argue that is certainly the case here. but the two are closely related. http://ipeatunc.blogspot.com/2011/08/negative-externalities-and-tragedy-of.html http://ipeatunc.blogspot.com/2011/08/negative-externalities-... i think the above is a bit over the top for my taste: > Secondly, is it really clear that people in Bangladesh (say) have a rights claim to an climate environment that is not two or three degrees warmer than it is right now? How did they acquire this right? ... because yes, I'd say they do have that right, but the point about the expectations being tied to some kind of property rights [physical or fundamental] as a differentiating factor seems to be a strong one. here they describe the tragedy of the commons as a specific sub category of negative externality (in direct contradiction to the preceding link): http://web.mit.edu/11.203/www/econ/index.php%3Fid=14.html http://web.mit.edu/11.203/www/econ/index.php%3Fid=14.html
  - stretchwithme 10y ago
    You can argue that some ongoing tragedy of the commons also has externalities. But is there such an externality in the use of water? Is there some side effect that doesn't involve the use of water itself? Isn't the tragedy, the depletion of the supply, the problem? That isn't external.

spangry 10y ago

I don't see how it follows that "public ownership of a resource doesn't work very well". From what I understanding, you're talking about inefficient over-consumption of some resource, and suggesting price-rationing as the solution. In most cases I think you'd be correct. In the case of public ownership then, the problem isn't public ownership per se, but rather when the public (i.e. government) does not set an appropriate price for using that resource. Although economic efficiency is all well and good, it's worth remembering that there are cases where another thing should be considered: equity. While it might be 'allocatively efficient' to charge high prices for water when water is scarce, the result could very well be that rich people can still fill their swimming pools while poor people die of thirst.

stretchwithme 10y ago
In a market economy, people are a lot less likely to be THAT poor or to be surrounded by similarly desperately poor people unable to help them quench their thirst. In the desert of San Jose, California where I live, water costs a half cent per gallon. Even if the market price is 10 times that, a gallon of drinking water would only cost a nickel. In the US there is $300 billion a year in charitable giving. I'm not worried that no one will give free drinking water people who can't afford a nickel a day for water. In fact, there are free water fountains already. So I don't think that is a serious consideration. The problem we would help solve by adopting more market oriented prices is vastly more important than edge cases that are already handled by other efforts. As to your first point, public ownership generally does not set market prices for resources. Governments often don't even have the means to determine what the market price is. And then they don't change them in response to conditions. Or they just give them away for free, making it impossible for the private sector to compete. Free things result in greater demand and shortages. And pressure to create more of the resource to give away, more than the population would use if there were a market price. Our roads are a good example. At rush hour they are clogged with traffic. Drivers pay nothing more for traveling at 5 pm than they do at 5 am. More roads are built so more can be given away. And the additional capacity is only needed part of the time, making it even more expensive. By contrast, a road with demand-based prices would be most profitable if the price was high enough to keep too many drivers from getting on the road. Too many drivers and traffic slows to a crawl. And that happens every day. And that only happens because of the public ownership. But you are right. One can say that if the decision makers understood this issue, public ownership would not be a problem. Roads would have market prices. And they do in Singapore. It's not a democracy. The decision makers do understand the issue and you pay more to drive at rush hour there.