Economists have a useful framework for thinking about effects of an economic transaction that extend beyond the actors involved in the transaction. They call them “externalities”. They can be good or bad (benefits/costs enjoyed/borne by those not involved), but mostly the conversation revolves around the bad ones. The good ones we tend to take for granted.
Externalities are one of the big problem areas in sorting out how to create useful water markets in the western United States, where ag-urban water transfers are seen as one of the primary solutions to water shortages. The archetypal externality is the tractor dealership. The farmer sells water to the city, a transaction advantageous to both, meaning both benefit. But the guy selling tractors will sell fewer of them as agricultural land is taken out of production.
In the case of the complex reallocation of water now underway, the reduction of flows of ag tail water from the Imperial Irrigation District to the Salton Sea creates an externality. Critics of the reduction, who are not part of the IID-urban water transfers, argue that they would be harmed by the transfers because the Salton Sea would become even more icky than it already is. The question is how one accommodates that concern.
A grassroots group called “Citizens for a Reliable Water Supply” filed a brief with the California courts earlier this year suggesting this solution:
It is the people who receive water from the Quantification Settlement Agreement who should pick up the tab for environmental impacts, says Citizens for a Reliable Water Supply.
Questions for my smart Inkstain readers:
- Is the reduction of flows to the Salton Sea legitimately considered an externality associated with ag-urban water transactions?
- If “yes”, who should pay the costs of that externality?
- Water sellers?
- Water buyers?
- The people harmed by a shrinking Salton Sea?