The Magazine

Flood Zones

A market solution to the challenge of water supply.

Jul 16, 2012, Vol. 17, No. 41 • By G. TRACY MEHAN III
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Developing water markets, in combination with scarcity pricing, or even in the absence of such pricing, would be a big step toward effective stewardship of scarce water resources. Zetland notes that golf uses 1 percent of California’s water and generates $7 billion in economic activity. Farmers use
75 percent of the state’s water to generate $32 billion in economic activity. Every liter of water used in golf generates 16 times the economic output of a liter used in farming.  

Of course, farmers will not, and should not, abandon their vocation altogether in order to let people chase a little white ball across the landscape. But farmers could be induced to increase efficiency if there were a market for selling their water savings to golf-course managers. They might switch to higher value, less water-intensive, crops—or install more efficient irrigation. “Water markets would probably reduce water consumption in golf courses, but they would reduce agricultural consumption even more,” claims Zetland. Why? 

The value of the output per unit of water at a golf course is greater than the value of output per unit of water at a farm, which makes it easier to pay more for water that’s going to be used on the putting green.

Thus, our water problems are no cause for pessimism if we get the prices right and open up markets—even reasonably regulated markets—to allow for adaptation to the new realities of demand and a growing, prosperous population. The End of Abundance makes a case for the elegance, simplicity, and equity of pricing and markets in addressing our current challenges.

G. Tracy Mehan III, assistant administrator for water at the Environmental Protection Agency during 2001-03, is a consultant and adjunct professor of law at George Mason University.