The Economics of Things that Flow
posted by Dave Hoffman
This week’s New Yorker has an article about water, and, specifically, a claim that it isn’t well suited to traditional economic analysis. For a taste, check out the interview with author Michael Specter here.
Specter provides many examples (from different cultures) of the difficulty societies have in creating residential water markets. Folks resist thinking of water as a commodity. In other countries (particularly, those without a strong riparian law tradition) misuse is rampant. Urban dwellers demand water for free (or force industry to subsidize home use). The result: waste, extreme shortages of potable water, and disease. Specter is particularly strong when he discusses how the competition for water in India and China (in particular) has resulted in a classic tragedy of the commons: farmers competing to dig wells deeper than their neighbors, leading to a falling water table, and, ultimately contamination by salt and poisons. He also provides the somewhat astonishing factoid that water use in the United States has fallen in absolute and per capita terms in the last thirty years, largely due to demand-side reductions caused by technological development. The article claims that the technological change was in turn spurred by the Clean Water Act’s pressure on industry.
The article reminded me of Frank’s nice post of last week on Net Neutrality: Law, Money, and Culture. As you may recall, Frank argued against treating network access as a normal economic good, largely to avoid “another avenue for the large corporations that dominate the culture industry to fast-track their wares to consumers? In the end, network bias-toward-wealthy-entities portends ever more pervasive commercialization of cultural life.” While Frank doesn’t exactly come out and say so, you get the sense (reading other net neutrality folks) that the nondiscrimination principle arises from an intuition that access to a certain quantum of information is a new part of Americans’ birthright endowment.
Perhaps the analogy is facile, but is there a meaningful connection between the economics of water and information? The reason that the analogy occurs to me is that both goods the real cost is access, not consumption. Obviously, there are some important differences too (information isn’t life, whatever Neal Stephenson thinks, etc.) But it might be that the lessons from the partial commodification of water in the last thirty years, and the positive consequences of regulation, could inform our experiences with informational regulation as well. Or, as the title says, is it time for an economics of things that flow?
[Will Baude points out that the idea of fugitive resources isn't new. Can anyone recommend a good primer comparing water and information economics? I obviously need to catch up!]
October 23, 2006 at 9:57 pm
Posted in: Economic Analysis of Law
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Responses (2)
Frank - October 24, 2006 at 10:18 am
I think that makes a lot of sense. If our proposal is accepted, I will be on a panel at Law, Culture, & Humanities in DC next March with a group of scholars interested in the connections between environmental law and IP. There are many interesting parallels between, say, the public trust doctrine and essential facilities doctrine, or eminent domain and fair use, etc.
As for information and desert–yes, I think that’s a good point. But I think the right to access water is a matter of brute need, which society should commit itself to expending resources on. The right to access information/expression is often not nearly so compelling, but the main policy concern is to avoid the mean-spiritedness of denying access to people when the marginal cost of their access is zero and they have no way to pay. For in the IP example, it’s not that the state is spending resources to bring access; rather, “progressives” here are advocating for the state to spend less resources on denying access.
Frank - October 24, 2006 at 10:20 am
By the way, there’s also a “IP expansionist” take on the similarity between IP and natural resources; Landes and Posner make a point about “congestion externalities arising out of overuse of a bit of expression.” But Dennis Karjala has pretty convincingly refuted that idea.
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