“Let us pay”, says the Grist; the connection between raising rates and conservation

From the Grist Blog:

As sources of drinking water slowly exhaust themselves, under pressure from growing demand and lagging supply, one wonders why governments in the region don’t raise water prices to encourage conservation.

Instead, most areas have chosen to ration supplies with top-down orders, which protect consumers from rate increases but force governments to spend time and energy enforcing the rules, and which all too often prove unequal to the task of conservation. It’s hard to believe that strict rationing and intrusive enforcement are more acceptable to citizens of the affected areas than higher rates for water, but when elected officials are involved in policy making, increased consumer rates are a third rail to be touched at great risk.

Much of the country’s critical infrastructure and many of its utilities are either directly controlled or heavily regulated by government institutions. This isn’t surprising. Infrastructure networks are subject to large positive and network externalities, such that purely private markets wouldn’t provide enough of the needed public goods.

Utilities are occasionally private, but are nearly universally heavily regulated. Opening a utility operation, particularly when transmission networks are needed, is an expensive proposition, and with the threat of competition few investors would find such a proposition appealing. Governments can encourage investment by guaranteeing a utility monopoly rights, but governments are then encouraged to regulate and monitor utilities to prevent abuse of that monopoly power.

The end result of these public arrangements is to insulate final consumers from anything resembling a market price on many scarce resources. This tends not to matter when supply runs well ahead of demand — when Lake Lanier is full and Atlanta is half its current size. As populations around the country grow, however, it becomes a serious problem.

To read the rest of this post on the Grist blog, click here.

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