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!]