Environmental Valuation & Cost-Benefit News

Abstract: Recent decades have seen an acceleration in public concern about the allocation of increasingly scarce water supplies. There are many reasons for this concern, such as growth in urban populations. In this article, we focus on how surface water’s special qualities (the combination of spillovers, rent-seeking behavior, and common pool resources) complicate the assignment of property rights in any legal framework. These characteristics make specific market structures necessary in order to efficiently allocate rights. The state usually designs those structures. Yet, just like markets can fail, so can governments fail to effectively allocate those rights. So designers often turn to quasi-judicial conservancy boards as a second-best solution. We argue that those boards may themselves fail through a form of “corporation failure.” We address these three types of failures, and offer an analysis of two cases that suggests that the likelihood conservancy boards will suffer from corporate failure depends on the actions of the boards and outside stakeholders (like governments).

Keywords: Water rights, Institutional design, Second best solutions, Market failure, Government failure, Corporation failure, Double moral hazard

by Andrew B. Whitford 1 and Benjamin Y. Clark 2
1. Department of Public Administration and Policy, The University of Georgia, 204 Baldwin Hall, Athens, GA 30602-1615, USA; Email: aw@uga.edu
2. Department of Public Administration and Policy, School of Public & International Affairs, The University of Georgia, 204 Baldwin Hall, Athens, GA 30602-1615, USA; Email: benclark@uga.edu

Policy Sciences via Springer Publishing www.SpringerLink.com
Volume 40, Number 4; December, 2007; Pages 335-351
DOI: 10.1007/s11077-007-9048-5
http://www.springerlink.com/content/mp41wk162724222k/