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Dr Dustin Garrick, University of Oxford, UK --- Water reform in a transaction costs world: concepts, metrics and lessons learned .----Economic innovations to manage risk through water trading Examines economic innovations to manage water security risks associated with intensified competition for scarce and variable water supplies. Contributions investigate institutional reforms, economic incentives and behavioural change in water allocation with examples from Australia, Canada, UK and USA.
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Water Reform in a Transac0on Costs World concepts, metrics and lessons learned
Dus$n Garrick, University of Oxford [email protected]
with Stuart Whi<en and Anthea Coggan, CSIRO Water Security, Risk and Society – April 18th 2012
Garrick and Bark 2011
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Adapta0on: Common Challenges
• Scarcity and compe00on • Variability • Mul0ple jurisdic0ons • Commitment to adapta0on • Environmental water recovery
Transaction costs and water markets
Source: Pujol et al 2006
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Transaction costs and adaptive efficiency in water reform • Path dependency. Technological, socioeconomic,
institutional and biophysical attributes create lock-in. Reversing or shifting paths is costly (Challen 2000, Marshall 2005, Livingston 2005, Libecap 2011).
• Water is different. Slippery property right with pervasive externalities and multiple uses and values, including public and private goods (Bauer 1997, Hanemann 2005)
• Transaction costs reflect tradeoff between efficiency and equity in resolving externalities, eg tied to downstream users and return flows (Colby 1990)
• Costs of exchange must be considered along with the costs of organising the market (McCann and Easter 2004)
Adaptation in a Transaction Costs World Example of Water Trading and Basin Planning
water trading and basin planning enhance flexibility, cope with uncertainty, and manage tradeoffs
Exchange
Market-enabling
Legislation
Institutional Context
Lock in
Dynamic, collective action
Static, implementation
Existing rights, infrastructure
Water rights reform, basin planning
Transactions
following Challen 2000, McCann et al 2005; Krutilla and Krause 2010
Typologies: connect concepts with metrics across a consistent set of actors
Toward markets for mixed goods from private to common pool goods
N=29
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Environmental Flow Water quan0ty Water quality Mul0ple
Comparative Perspective and Lessons Learned
Lock-in costs of path dependency
Costs of collective action to reform water rights are both up-front and iterative
Getting to scale requires working across scales through polycentric governance arrangements
Borders raise transaction costs, while nesting arrangements promote efficient, equitable and accountable public economies
Need to harness broader drivers Consider the lock-in implications of new policy
Colorado River Columbia River Murray Darling River
Adaptive efficiency requires costly re-investments in collective action, to strengthen enabling conditions and adapt to unintended consequences, particularly during initial years of implementation.
Composite Performance of Environmental Water Markets in the Columbia Basin, 2003-7
Garrick and Aylward 2012
Annual Average Transaction Costs (per CFS) 2003-2007 by Subbasin
160000
Garrick and Aylward 2012
Transac0on Costs Per Unit of Water by Subbasin, 2003-‐7 v. 2008-‐10
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$50
$100
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$350
$0
$2,000
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BiZerroot Blackfoot Deschutes Grande Ronde John Day Methow Salmon Uma0lla Walla Walla** WillameZe Yakima
TC per AF
TC per CFS
$ per CFS $ per AF
Magnitude
Time or Scale
Average Transac$on Costs
Sta0c
Dynamic
Transac0on costs and adap0ve efficiency
Different Scales
Underpinning dynamic costs of collective action may be marked by step changes w. punctuated equilibria
Garrick and Aylward, forthcoming, Ecological Economics special issue
Taking stock: lessons learned 1. Lock-‐in costs inhibit adapta0on and bias toward
incremental change and vulnerability to shocks, e.g. Colorado River
2. Dynamic costs illustrate need for ongoing investments in collec0ve ac0on to strengthen enabling condi0ons, adapt to unintended consequences, as well as importance of design/sequencing, and nes0ng across jurisdic0ons/scales
3. Transac$on costs analysis can iden0fy factors contribu0ng to adap$ve efficiency, but requires compara0ve and longitudinal study linked with poli0cal economic analysis and integrated CBA.
