When the washing machine is running, the sprinklers are on, and the kids are filling the bathtub, few Americans are thinking about how much water they are consuming. Under the current subsidized system of water allocation, Americans only spend approximately $474 a year on water, a price that does not reflect its true scarcity value.
In PERC’s latest video production Director of Applied Programs Reed Watson and Research Fellow Brandon Scarborough discuss the dynamic power of water markets. In contrast to the often acrimonious allocation of water, markets rely on prices and entrepreneurial action to reflect the true value of water. PERC scholars propose voluntary water exchange, conservation, and cooperation in lieu of water wars and bureaucratic water allocation.
Flexible price signals will thus encourage consumers to conserve water by bearing the full cost of their consumption. For example, as water becomes scarcer, the prices will go up and people will respond to those prices by conserving more water.
Watson and Scarborough’s new book, Tapping Water Markets, written with PERC Executive Director Terry Anderson, covers a wide range of topics including surface water allocation, groundwater management, environmental flows, and water quality trading. It concludes with predictions about the future of water scarcity and the ability of water markets to shape that future more positively.