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Pricing Water

Posted By Russ Roberts On March 31, 2005 @ 4:40 pm In Environment | Comments Disabled

The Washington Post weighs in [1] on the impending ecosystems meltdown [2].  The Post story actually shows some skepticism.  Not, alas, over the assessment of impending doom, but rather on the report’s suggestions that it might be useful to price some resources that are currently unpriced.  The story quotes Harold Mooney, one of the numerous contributors to the study, on environmental problems:

One way to address such problems, Mooney said, is to
assign economic value to environmental benefits that many people take
for granted. "We consider services free — like clean water and pest
regulation — but they are not free," he said. "A number of services
have a potential to get into the economic system that will help in
making wise decisions."

And here we get the only skeptical note in the entire article:

Environmental advocates such as Nadia
Martinez, a research fellow at the Institute for Policy Studies, a
nonprofit think tank, applauded the report’s findings but said she is
concerned that governments could implement its market-based
recommendations while ignoring its caveats. For example, she said,
imposing a cost on clean water would disproportionately affect the
poor.

Unfortunately, left omitted is the fact that not imposing a cost on clean water disproportionately affects the poor.  Because water is unpriced, there is insufficient incentive to provide it in the poorest parts of the world.  That means there is very little of it for the poor to enjoy and as a result, poor people around the world die from lack of water.  Here [3] is one study that looked at the data rather than arguing about the morality of pricing water.  In that study, published in the Journal of Political Economy, the poor were disproportionately affected, but in the opposite direction from what worries the skeptic:

Using the variation in ownership of water
provision across time and space generated by the privatization process,
we find that child mortality fell 8 percent in the areas that
privatized their water services and that the effect was largest (26
percent) in the poorest areas.

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URLs in this post:

[1] weighs in: http://www.washingtonpost.com/wp-dyn/articles/A10966-2005Mar29.html

[2] ecosystems meltdown: http://cafehayek.com/2005/03/its_nearly_over.html

[3] Here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=648048

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