On October 30, President Bush signe

On October 30, President Bush signed legislation
into law that makes it possible for recipients of
water from California's Central Valley Project to
resell that water. This legislation is controversial,
because it is expected to plant the seeds for the
development of a water market in California,
Among the most frequently cited objections to
using markets to allocate water are concerns that
the results would be unfair and disruptive: In particular,
opponents argue that a move to market
prices would mean a large shift in water from
farms to cities. This change in water allocation,
they argue, would lead to reduced agricultural
income and production, lower income in agriculturally
dependent communities, and higher
food prices. In the extreme, this stylized scenario
predicts a world with fountains in Beverly Hills
and desolation in California's central valley farming
region.
This vision of the distributional consequences of
a market system for water results, in part, from
putting together two statements about price determination
and drawing the wrong conclusion.
These statements are that (a) water is extremely
valuable, and (b) that the value of a commodity is
reflected in its price. Thus, the conclusion drawn
by some is that water prices would be high in a
market system and that low income and agricultural
consumers would be severely limited
in their abilities to purchase water.
This conclusion does not necessarily follow,
however. In fact, a similar debate took place in
the economics literature in the eighteenth and
nineteenth centuries before being put to rest by
Alfred Marshall. Known as the "Diamond-Water
paradox:' the issue sought to explain how the
observed price of water could be below that of
other commodities, such as diamonds, given
water's high value in sustaining life. Marshall's
solution to the paradox was to recognize that
prices reflect the value of the last, or marginal,
unit, not the value of all units consumed. He
demonstrated that a commodity that has high
value to society could have a low price if it
were available in sufficient supply.
As discussed in this Weekly Letter, this insight is
relevant to the current debate. The evidence sug~
gests that water markets would not lead to a high
price for water, because while urban users now
pay a significantly higher price than agricultural
users, that reflects differences invalues of the last
unit consumed by the two groups given artificial
restrictions on trading. In fact, the eyidence suggests
that water use patterns would not be affected
significantly, implying that the effects on agricurture
and agricultural communities would not be
large.
The paradox
The diamond-water paradox was puzzled over
for nearly a hundred years in the economics literature.
Adam Smith considered the issue in the
late eighteenth century, and David Ricardo spent
considerable effort trying to understand this
seemingly logical inconsistency with relative
price determination. Why would water, which
is essential to life, carry a price that is below that
of diamonds, whose use is far less critical?
Ricardo, the father of the labor theory of value,
tried to apply that theory to this case. He argued
that the cost of a commodity reflected the embedded
labor needed to bring that product to
market. Thus, he argued that water was relatively
cheap because it required less labor effort to
acquire than did diamonds.
While seeming to solve the dilemma, it was left
to Marshall to develop the correct answer to the
paradox. Marshall's answer can be seen in the
figure. Supply and demand curves for diamonds
(good 1) and water (good 2) are shown in the
two panels of the figure. As shown in the figure,
prices are determined where supply and demand
intersect in each market (points B and G), and
given the low quantity of diamonds, the equilibrium
price of diamonds exceeds that of water.
The important factor to note is that this is a marginal
condition. Prices measure the value of the
final unit consumed. The total value derived from
use is measured by the area under the demand curve up to the last unit, areas ABCD and FGHI,
for diamonds and water, respectively. Clearly,
even though the value of the last unit of diamonds
is higher than that of the last unit of water,
the cumulative value of water far exceeds that of
diamonds.
The solution to the paradox, therefore, differentiates
between marginal value (prices) and total
value. It is not necessary for the price of water to
be high to guarantee that it be used beneficially,
nor does a low price necessarily reflect an inappropriately
low total value for the resource.
Instead, the price serves to ration water to users
by applying the criterion that the value to those
using water has to be at least as high as the price
on the last unit, while those that do not receive
water must value it at less than that price.
California water prices
Misunderstanding of this paradox underlies some
of the fears about water markets expressed by agricultural
and political groups. Concern is high in
the agricultural regions that if farmers could sell
their water, they would do so. The high prices
currently paid by urban users for water are used as evidence that markets would allow those consumers
to bid up the price paid by farmers to a
high level. Given these prices, it is argued that
selling water would be more profitable than
growing crops, which would lead to il sharp
curtailment of agriculture.
In fact, these fears are overstated. High water
prices are observed in urban areas, but those
prices are not indicative of a market price for a
farmer's water. Urban prices are higher than agricultural
prices for two basic reasons. First, urban
prices are higher because the water has to be
pumped further and treated to meet higher quality
standards. In California, for example, these
costs can exceed $100 per acre foot in many
urban areas. Those charges would continue to
be applied, which would result in a significantly
higher urban price even with a market price at
the wholesale leveL Thus, a high urban price
does not necessarily imply a high price for water
at the farm level.More importantly, current high urban prices reflect
artificial limits on urban access to water.
While those prices reflect urban users'willingness
to pay given a fixed supply, their willingness
to pay is likely to fall off sharply as more water is
made available.
To see this point, return to the two figures. Let
the figures reflect the supply and demand for water
for two consumers, one urban (good 1), and
one agricultural (good 2). Because water is not
freely traded, the price for urban users is higher
than that for agricultural users given the limited
supply available to urban users. Consider a small
transfer to urban users, however, as indicated by
the shifting supply curves in each market. In that
case, a small increase in the supply of urban
water would cause a sharp drop in urban prices
(from B to E), while causing a small increase in
agricultural prices (from G to J). This asymmetric
effect on the prices of the two user groups is the
direct result of differences in the slopes of the
demand curves of the different groups.
As with the Diamond-Water paradox, price differentials
between agricultural users' willingness
to pay and urban users' willingness to pay reflect
differences in the marginal value of water given
available supplies. If supplies were allowed to
move between the two user groups, an equilibrium
price (differing only by transportation and
processing charges) would emerge that shifts a
minimal quantity of water to urban users. Thus,
the fact that urban users are currently willing to
pay a. higher price at the margin does not mean
that they would pay that price for a large quantity
of water offered by farmers.Evidence
Some recent evidence is suggestive of the potential
effect. Vaux and Howitt (1984) estimate that
price effects on agriculture and the magnitude
of water transferred in California would be relatively
small under a market system. Using updated
figures in 1991 dollars from that article,
Schmidt and Cannon (1991) found that average
agricultural water prices might increase as little
as $2.60 per acre foot-from $54.61 to $57.23while
urban prices would fall significantly. The
model also suggests that urban consumption
would increase by less than a million acre feet
per year. (Agriculture in California consumed
approximately 28.5 of the total 34 million acre
feet in 1985, which was the last "normal" year
of water deliveries.)
These asymmetric effects on urban and agricultuial
piices reflect the features of the diagram.
Urban prices are high because quantities are
very limited. However, if supplies increase, the
prices urban users are willing to pay would
drop off sharply because their demands are very
inelastic. In contrast, agricultural consumers'
demands are more elastic at current levels of
consumption. Consequently, agricultural users
would be willing to sell some water even with
relatively small increases in water prices. (Recent
studies by agricultural economists suggest that a
10 percent increase in prices would free up 4 to
7 percent of agriculture's water which would
translate to 20 to 40 percent more for nonagricultural
users. Moreover, these estimates are for
short run responses. Over the longer run,responses
are likely to be much larger as farmers
install new technologies that save water.)
The important implication from these studies is
that the disruption caused by moving to a water
market would be small. Most fundamentally, all
users of water have downward sloping demand
curves for water. Farmers derive greater value
from the first unit of water they use than from the
last unit, and while the last unit may carry a low
value, the cumulative value of their water use is
large. Thus, it is unreasonable to think that a
slight increase in the market price of water
would cause a farmer to stop all consumptionhe
would simply move back along his demand
curve and use less.

Hasil (Bahasa Indonesia) 1:

Pada 30 Oktober Presiden Bush menandatangani undang-undangmenjadi undang-undang yang memungkinkan untuk Penerimaair dari California Central Valley proyek untukmenjual kembali air. Undang-undang ini kontroversial,karena itu diharapkan untuk menanam benih-benihpengembangan pasar air di California,Di antara yang paling sering dikutip keberatan terhadapmenggunakan pasar untuk mengalokasikan air adalah keprihatinan yangHasilnya akan tidak adil dan mengganggu: khususnya,lawan berpendapat bahwa Pindahkan ke pasarharga akan berarti pergeseran besar dalam air daripeternakan kota. Perubahan ini dalam alokasi air,mereka berpendapat, akan mengakibatkan berkurang pertanianpendapatan dan produksi, menurunkan pendapatan di pertanianmasyarakat yang bergantung pada, dan lebih tinggiharga makanan. Di ujung, skenario ini bergayamemprediksi dunia dengan air mancur di Beverly Hillsdan kehancuran di California central valley pertaniandaerah.Visi ini akibat distribusisistem pasar untuk air hasil, dalam bagian, darimenyusun dua pernyataan tentang penentuan hargadan menarik kesimpulan yang salah.Pernyataan ini adalah bahwa air () adalah sangatberharga, dan (b) yang nilai komoditastercermin dalam harga. Jadi, kesimpulan yang diambiloleh beberapa adalah bahwa air harga akan tinggipasar sistem dan bahwa pendapatan rendah dan pertaniankonsumen akan sangat terbatasdalam kemampuan mereka untuk membeli air.Kesimpulan ini tidak selalu mengikuti,however. In fact, a similar debate took place inthe economics literature in the eighteenth andnineteenth centuries before being put to rest byAlfred Marshall. Known as the "Diamond-Waterparadox:' the issue sought to explain how theobserved price of water could be below that ofother commodities, such as diamonds, givenwater's high value in sustaining life. Marshall'ssolution to the paradox was to recognize thatprices reflect the value of the last, or marginal,unit, not the value of all units consumed. Hedemonstrated that a commodity that has highvalue to society could have a low price if itwere available in sufficient supply.As discussed in this Weekly Letter, this insight isrelevant to the current debate. The evidence sug~gests that water markets would not lead to a highprice for water, because while urban users nowpay a significantly higher price than agriculturalusers, that reflects differences invalues of the lastunit consumed by the two groups given artificialrestrictions on trading. In fact, the eyidence suggeststhat water use patterns would not be affectedsignificantly, implying that the effects on agricurtureand agricultural communities would not belarge.The paradoxThe diamond-water paradox was puzzled overfor nearly a hundred years in the economics literature.Adam Smith considered the issue in thelate eighteenth century, and David Ricardo spentconsiderable effort trying to understand thisseemingly logical inconsistency with relativeprice determination. Why would water, whichis essential to life, carry a price that is below thatof diamonds, whose use is far less critical?Ricardo, the father of the labor theory of value,tried to apply that theory to this case. He arguedthat the cost of a commodity reflected the embeddedlabor needed to bring that product tomarket. Thus, he argued that water was relativelycheap because it required less labor effort toacquire than did diamonds.While seeming to solve the dilemma, it was leftto Marshall to develop the correct answer to theparadox. Marshall's answer can be seen in thefigure. Supply and demand curves for diamonds(good 1) and water (good 2) are shown in thetwo panels of the figure. As shown in the figure,prices are determined where supply and demandintersect in each market (points B and G), andgiven the low quantity of diamonds, the equilibriumprice of diamonds exceeds that of water.The important factor to note is that this is a marginalcondition. Prices measure the value of thefinal unit consumed. The total value derived fromuse is measured by the area under the demand curve up to the last unit, areas ABCD and FGHI,for diamonds and water, respectively. Clearly,even though the value of the last unit of diamondsis higher than that of the last unit of water,the cumulative value of water far exceeds that ofdiamonds.The solution to the paradox, therefore, differentiatesbetween marginal value (prices) and totalvalue. It is not necessary for the price of water tobe high to guarantee that it be used beneficially,nor does a low price necessarily reflect an inappropriatelylow total value for the resource.Instead, the price serves to ration water to usersby applying the criterion that the value to thoseusing water has to be at least as high as the priceon the last unit, while those that do not receivewater must value it at less than that price.California water pricesMisunderstanding of this paradox underlies someof the fears about water markets expressed by agriculturaland political groups. Concern is high inthe agricultural regions that if farmers could selltheir water, they would do so. The high pricescurrently paid by urban users for water are used as evidence that markets would allow those consumersto bid up the price paid by farmers to ahigh level. Given these prices, it is argued thatselling water would be more profitable thangrowing crops, which would lead to il sharpcurtailment of agriculture.In fact, these fears are overstated. High waterprices are observed in urban areas, but thoseprices are not indicative of a market price for afarmer's water. Urban prices are higher than agriculturalprices for two basic reasons. First, urbanprices are higher because the water has to bepumped further and treated to meet higher qualitystandards. In California, for example, thesecosts can exceed $100 per acre foot in manyurban areas. Those charges would continue tobe applied, which would result in a significantlyhigher urban price even with a market price atthe wholesale leveL Thus, a high urban pricedoes not necessarily imply a high price for waterat the farm level.More importantly, current high urban prices reflectartificial limits on urban access to water.While those prices reflect urban users'willingnessto pay given a fixed supply, their willingnessto pay is likely to fall off sharply as more water ismade available.To see this point, return to the two figures. Letthe figures reflect the supply and demand for waterfor two consumers, one urban (good 1), andone agricultural (good 2). Because water is notfreely traded, the price for urban users is higherthan that for agricultural users given the limitedsupply available to urban users. Consider a smalltransfer to urban users, however, as indicated bythe shifting supply curves in each market. In thatcase, a small increase in the supply of urbanwater would cause a sharp drop in urban prices(from B to E), while causing a small increase inagricultural prices (from G to J). This asymmetriceffect on the prices of the two user groups is thedirect result of differences in the slopes of thedemand curves of the different groups.As with the Diamond-Water paradox, price differentialsbetween agricultural users' willingnessto pay and urban users' willingness to pay reflectdifferences in the marginal value of water givenavailable supplies. If supplies were allowed tomove between the two user groups, an equilibriumprice (differing only by transportation andprocessing charges) would emerge that shifts aminimal quantity of water to urban users. Thus,the fact that urban users are currently willing topay a. higher price at the margin does not meanthat they would pay that price for a large quantityof water offered by farmers.EvidenceSome recent evidence is suggestive of the potentialeffect. Vaux and Howitt (1984) estimate thatprice effects on agriculture and the magnitudeof water transferred in California would be relativelysmall under a market system. Using updatedfigures in 1991 dollars from that article,Schmidt and Cannon (1991) found that averageagricultural water prices might increase as littleas $2.60 per acre foot-from $54.61 to $57.23whileurban prices would fall significantly. Themodel also suggests that urban consumptionwould increase by less than a million acre feetper year. (Agriculture in California consumedapproximately 28.5 of the total 34 million acrefeet in 1985, which was the last "normal" yearof water deliveries.)These asymmetric effects on urban and agricultuialpiices reflect the features of the diagram.Urban prices are high because quantities arevery limited. However, if supplies increase, theprices urban users are willing to pay would
drop off sharply because their demands are very
inelastic. In contrast, agricultural consumers'
demands are more elastic at current levels of
consumption. Consequently, agricultural users
would be willing to sell some water even with
relatively small increases in water prices. (Recent
studies by agricultural economists suggest that a
10 percent increase in prices would free up 4 to
7 percent of agriculture's water which would
translate to 20 to 40 percent more for nonagricultural
users. Moreover, these estimates are for
short run responses. Over the longer run,responses
are likely to be much larger as farmers
install new technologies that save water.)
The important implication from these studies is
that the disruption caused by moving to a water
market would be small. Most fundamentally, all
users of water have downward sloping demand
curves for water. Farmers derive greater value
from the first unit of water they use than from the
last unit, and while the last unit may carry a low
value, the cumulative value of their water use is
large. Thus, it is unreasonable to think that a
slight increase in the market price of water
would cause a farmer to stop all consumptionhe
would simply move back along his demand
curve and use less.

Hasil (Bahasa Indonesia) 2:

Pada tanggal 30 Oktober, Presiden Bush menandatangani undang-undang
menjadi undang-undang yang memungkinkan penerima
air dari lembah Proyek Central California untuk
menjual air itu. Undang-undang ini kontroversial,
karena diharapkan untuk menanam benih untuk
pengembangan pasar air di California,
antara yang paling sering dikutip keberatan
menggunakan pasar untuk mengalokasikan air kekhawatiran bahwa
hasilnya akan menjadi tidak adil dan mengganggu: Secara khusus,
lawan berpendapat bahwa pindah ke pasar
harga akan berarti pergeseran besar dalam air dari
peternakan ke kota-kota. Perubahan alokasi air,
mereka berpendapat, akan menyebabkan penurunan pertanian
pendapatan dan produksi, pendapatan yang lebih rendah di pertanian
masyarakat yang bergantung, dan lebih tinggi
harga pangan. Dalam ekstrim, skenario bergaya ini
memprediksi dunia dengan air mancur di Beverly Hills
dan sunyi sepi di pertanian lembah tengah California
wilayah.
Visi ini konsekuensi distribusi dari
sistem pasar untuk hasil air, sebagian, dari
menyusun dua laporan tentang penentuan harga
dan menarik kesimpulan yang salah.
Pernyataan-pernyataan ini adalah bahwa (a) air sangat
berharga, dan (b) bahwa nilai komoditas yang
tercermin dalam harga. Dengan demikian, kesimpulan yang ditarik
oleh beberapa adalah bahwa harga air akan tinggi dalam
sistem pasar dan pendapatan rendah dan pertanian
konsumen akan sangat terbatas
dalam kemampuan mereka untuk membeli air.
Kesimpulan ini tidak selalu mengikuti,
namun. Bahkan, perdebatan serupa terjadi di
literatur ekonomi di kedelapan belas dan
kesembilan belas abad sebelum dimasukkan untuk beristirahat oleh
Alfred Marshall. Dikenal sebagai "Diamond-Air
paradoks: 'masalah berusaha untuk menjelaskan bagaimana
harga diamati air bisa di bawah dari
komoditas lain, seperti berlian, yang diberikan
. bernilai tinggi air dalam mempertahankan Marshall kehidupan
solusi untuk paradoks adalah untuk mengakui bahwa
harga mencerminkan nilai yang terakhir, atau marjinal,
satuan, bukan nilai dari semua unit yang dikonsumsi. Dia
menunjukkan bahwa komoditas yang memiliki tinggi
nilai masyarakat bisa memiliki harga rendah jika
tersedia pasokan yang cukup.
Sebagaimana dijelaskan dalam Weekly ini Surat, wawasan ini
relevan dengan perdebatan saat ini. Bukti sug ​​~
gests bahwa pasar air tidak akan menyebabkan tinggi
harga untuk air, karena sementara pengguna perkotaan sekarang
membayar harga yang jauh lebih tinggi daripada pertanian
pengguna, yang mencerminkan perbedaan invalues ​​terakhir
Unit yang dikonsumsi oleh kedua kelompok diberikan buatan
pembatasan perdagangan. Bahkan, eyidence menunjukkan
bahwa pola penggunaan air tidak akan terpengaruh
secara signifikan, menyiratkan bahwa efek pada agricurture
masyarakat dan pertanian tidak akan
besar.
Paradoks
Paradoks berlian-air bingung atas
selama hampir seratus tahun dalam literatur ekonomi.
Adam Smith dianggap masalah pada
akhir abad kedelapan belas, dan David Ricardo menghabiskan
banyak upaya mencoba memahami ini
inkonsistensi yang tampaknya logis dengan relatif
penentuan harga. Mengapa air, yang
sangat penting untuk kehidupan, membawa harga yang di bawah
berlian, yang penggunaannya jauh lebih penting?
Ricardo, ayah dari teori nilai kerja,
mencoba untuk menerapkan teori bahwa untuk kasus ini. Dia berpendapat
bahwa biaya komoditi mencerminkan tertanam
tenaga kerja yang dibutuhkan untuk membawa produk yang ke
pasar. Dengan demikian, ia berpendapat bahwa air relatif
murah karena itu diperlukan upaya lebih sedikit tenaga kerja untuk
memperoleh daripada berlian.
Sementara tampak memecahkan dilema, itu diserahkan
ke Marshall untuk mengembangkan jawaban yang benar untuk
paradoks. Jawaban Marshall dapat dilihat pada
gambar. Kurva penawaran dan permintaan untuk berlian
(baik 1) dan air (yang baik 2) ditunjukkan dalam
dua panel gambar. Seperti terlihat pada gambar,
harga ditentukan di mana penawaran dan permintaan
berpotongan di setiap (B poin dan G) pasar, dan
mengingat kuantitas rendah dari berlian, keseimbangan
harga berlian melebihi air.
Faktor penting untuk dicatat adalah bahwa ini adalah marjinal
kondisi. Harga mengukur nilai
satuan akhir dikonsumsi. Total nilai yang berasal dari
penggunaan diukur dengan daerah di bawah kurva permintaan hingga unit terakhir, daerah ABCD dan FGHI,
untuk berlian dan air, masing-masing. Jelas,
meskipun nilai unit terakhir dari berlian
adalah lebih tinggi dari unit air yang terakhir,
nilai kumulatif air jauh melebihi dari
berlian.
Solusi untuk paradoks, oleh karena itu, membedakan
antara nilai marginal (harga) dan Total
nilai. Hal ini tidak perlu untuk harga air
menjadi tinggi untuk menjamin bahwa hal itu dapat digunakan menguntungkan,
juga tidak harga rendah tentu mencerminkan tidak tepat
Total nilai yang rendah untuk sumber daya.
Sebaliknya, harga berfungsi untuk jatah air untuk pengguna
dengan menerapkan kriteria bahwa nilai mereka
menggunakan air harus setidaknya setinggi harga
pada unit terakhir, sementara mereka yang tidak menerima
air harus menghargai itu kurang dari harga itu.
California harga air
Kesalahpahaman paradoks ini mendasari beberapa
ketakutan tentang pasar air diungkapkan oleh pertanian
kelompok dan politik. Kepedulian tinggi di
daerah pertanian jika petani bisa menjual
air mereka, mereka akan melakukannya. Harga tinggi
saat ini dibayar oleh pengguna perkotaan untuk air yang digunakan sebagai bukti bahwa pasar akan memungkinkan mereka konsumen
untuk menawar atas harga yang dibayar oleh petani ke
tingkat tinggi. Mengingat harga ini, ia berpendapat bahwa
menjual air akan lebih menguntungkan daripada
tanaman yang tumbuh, yang akan menyebabkan il tajam
pembatasan pertanian.
Bahkan, ketakutan ini dibesar-besarkan. Tinggi air
harga diamati di daerah perkotaan, tetapi mereka
harga bukan merupakan indikasi harga pasar untuk
air petani. Harga perkotaan lebih tinggi dari pertanian
harga untuk dua alasan dasar. Pertama, urban
harga lebih tinggi karena air harus
dipompa lebih lanjut dan diperlakukan untuk memenuhi kualitas yang lebih tinggi
standar. Di California, misalnya, ini
biaya dapat melebihi $ 100 per hektar kaki di banyak
daerah perkotaan. Biaya mereka akan terus
diterapkan, yang akan menghasilkan signifikan
harga perkotaan lebih tinggi bahkan dengan harga pasar di
tingkat grosir demikian, harga perkotaan yang tinggi
tidak selalu berarti harga tinggi untuk air
di peternakan level.More penting, saat ini harga perkotaan yang tinggi mencerminkan
batasan buatan pada akses perkotaan terhadap air.
Sementara harga tersebut mencerminkan users'willingness perkotaan
untuk membayar diberi pasokan tetap, kesediaan mereka
untuk membayar kemungkinan jatuh tajam karena lebih banyak air yang
tersedia.
Untuk melihat titik ini, kembali ke dua angka. Biarkan
angka mencerminkan pasokan dan permintaan air
untuk dua konsumen, salah satu kota (baik 1), dan
satu pertanian (baik 2). Karena air tidak
bebas diperdagangkan, harga untuk pengguna perkotaan lebih tinggi
dibandingkan untuk pengguna pertanian mengingat terbatasnya
pasokan tersedia untuk pengguna perkotaan. Pertimbangkan kecil
transfer ke pengguna perkotaan, namun, seperti yang ditunjukkan oleh
kurva penawaran bergeser di masing-masing pasar. Dalam
kasus, sedikit peningkatan pasokan perkotaan
air akan menyebabkan penurunan tajam harga perkotaan
(dari B ke E), sementara menyebabkan peningkatan kecil dalam
harga pertanian (dari G ke J). Ini asimetris
berpengaruh pada harga dari kedua kelompok pengguna adalah
akibat langsung dari perbedaan lereng
kurva permintaan dari kelompok yang berbeda.
Seperti paradoks Diamond-Air, perbedaan harga
antara pengguna pertanian 'kesediaan
untuk membayar dan pengguna urban ' kesediaan untuk membayar mencerminkan
perbedaan dalam nilai marjinal air yang diberikan
pasokan yang tersedia. Jika pasokan diizinkan untuk
bergerak di antara kedua kelompok pengguna, keseimbangan
harga (hanya berbeda dengan transportasi dan
biaya pengolahan) akan muncul yang menggeser sebuah
jumlah minimal air untuk pengguna perkotaan. Dengan demikian,
fakta bahwa pengguna perkotaan saat ini bersedia
membayar. harga yang lebih tinggi di margin tidak berarti
bahwa mereka akan membayar harga yang untuk sejumlah besar
air yang ditawarkan oleh farmers.Evidence
Beberapa bukti terbaru adalah sugestif dari potensi
efek. Vaux dan Howitt (1984) memperkirakan bahwa
efek harga pada pertanian dan besarnya
air yang ditransfer di California akan relatif
kecil di bawah sistem pasar. Menggunakan diperbarui
angka pada tahun 1991 dolar dari artikel tersebut,
Schmidt dan Cannon (1991) menemukan bahwa rata-rata
pertanian harga air mungkin meningkat sedikit
dari $ 2.60 per hektar kaki-dari $ 54,61 ke $ 57.23while
harga perkotaan akan turun secara signifikan. Para
Model juga menunjukkan bahwa konsumsi perkotaan
akan meningkat kurang dari satu juta kaki acre
per tahun. (Pertanian di California dikonsumsi
sekitar 28,5 dari total 34 juta hektar
kaki pada tahun 1985, yang terakhir "normal" tahun
dari pengiriman air.)
Efek asimetris pada perkotaan dan agricultuial
piices mencerminkan fitur diagram.
harga Perkotaan tinggi karena jumlah yang
sangat terbatas. Namun, jika persediaan meningkat,
pengguna harga perkotaan bersedia membayar akan
menurunkan tajam karena tuntutan mereka sangat
inelastis. Sebaliknya, konsumen pertanian '
tuntutan yang lebih elastis pada tingkat saat ini
konsumsi. Akibatnya, pengguna pertanian
akan bersedia untuk menjual air bahkan dengan
kenaikan yang relatif kecil dalam harga air. (Terbaru
penelitian oleh para ekonom pertanian menunjukkan bahwa
kenaikan 10 persen harga akan membebaskan 4 sampai
7 persen air pertanian yang akan
menerjemahkan untuk 20 sampai 40 persen lebih untuk nonpertanian
pengguna. Selain itu, perkiraan ini adalah untuk
respon jangka pendek. Selama lebih lama menjalankan, tanggapan
yang mungkin jauh lebih besar sebagai petani
menginstal teknologi baru yang menghemat air.)
Implikasi penting dari studi ini adalah
bahwa gangguan yang disebabkan oleh pindah ke air
pasar akan kecil. Yang paling mendasar, semua
pengguna air memiliki permintaan miring ke bawah
kurva untuk air. Petani memperoleh nilai yang lebih besar
dari unit pertama air yang mereka gunakan dibandingkan dari
unit terakhir, dan sementara unit terakhir dapat membawa rendah
nilai, nilai kumulatif penggunaan air mereka
besar. Oleh karena itu, masuk akal untuk berpikir bahwa
sedikit peningkatan harga pasar air
akan menyebabkan petani untuk menghentikan semua consumptionhe
hanya akan bergerak kembali sepanjang permintaannya
kurva dan menggunakan lebih sedikit.