Nathanael Johnson at Grist continues his excellent work digging past the noise to try to help us understand what’s really going on with California’s drought. Today it’s a deep dive into water markets, which includes this great explanation of why they’re so hard in practice:
It’s tricky to show that the water you’re selling is legally yours, and tricky to get it to your buyer. These problems stem from the physical properties of the stuff. The amount of water you need to irrigate a field is big and heavy; it’s slippery — to hold it we need special containers (like reservoirs); it’s always moving, and mixing, and splitting into pieces, so it’s hard to tell whose is whose; it unpredictably falls out of the sky, and has no respect for property lines; if you drop it, it disappears into the ground. Because water is liquid in the physical sense, it is not at all liquid in the financial sense.
Johnson takes us through a hypothetical water deal to illustrate what economists call “transaction costs”. Well worth a click.