Kill Your Status Quo
NB: I've written much more for lay audiences; see my aguanomics blog (4,500+ posts) and popular writing.Schuerhoff, Marianne, David Zetland and Hans-Peter Weikard (2013). "The life and death of the Dutch groundwater tax" Water Policy 15(6):1064-1077. [pdf]
Books, chapters and reports
Zetland, David (2013). "Water conservation" [draft pdf]. In Whitehead, John and Haab, Tim (Eds.), Environmental and Natural Resource Economics: An Encyclopedia Goleta CA: ABC-CLIO. Working papers
Tradition versus dogma: Water metering in England and Wales "Finished" papers
The Amsterdam Sex Exchange [pdf]
Zetland, David (2013). "Economists owes ecology an apology." In Primot, S., van der Valk, Michael R., Keenan, P. (Eds.), Green Growth and Water Allocation Den Haag: IHP-UNESCO.
Zetland, David (2013).* "Water managers are selfish like us" [pdf] In List, John and Price, Michael (Eds.), Handbook on Experimental Economics and the Environment, chapter 14, pp 407-433. Northampton MA: Edward Elgar. ISBN: 978-1847206459
Abstract: Managers of public water companies present themselves and are seen as public servants maximizing public welfare. Because water is rarely allocated through market mechanisms, this maximization requires that managers cooperate in a bureaucratic version of a social dilemma. Members of the Metropolitan Water District of Southern California (MET, a consumer cooperative) face just such a dilemma: MET's member agencies make policies as members (setting prices, for example) that they obey as consumers. This chapter reports the results of experiments that quantified cooperation among MET's member agency managers (MAMs) using public goods games. The results indicate that MAMs are neither relatively nor absolutely cooperative in comparison to, respectively, groups of students and a threshold efficiency consistent with maximizing social welfare. Additional results on type indicate that MAMs have a larger share of cooperators and free-riders than students, but MAMs are twice as likely to be free-riders as cooperators. MAM also appear to engage in cheap talk: Their responses to trust questions (stated preference) have no correlation with their experimental behavior (revealed preference); student preferences are correlated.
Zetland, David and Moeller-Gulland, Jennifer (2012). "The political economy of land and water grabs." In Allan, J.A., Warner, J., Sojamo, S. and Keulertz, M. (Eds.), The Handbook of Land and Water Grabs in Africa: Foreign Direct Investment and Food and Water Security, chapter 3.3, pp 257-272. Oxford: Routledge. ISBN: 978-1-85743-669-3 [pdf]
Abstract: We discuss the impact of corruption as a contributing factor to "land grabs" in SSA and examine land grab deals by country pairs to identify which deals may be grabs and which may be normal FDI. Most deals are made by corrupt selling countries but buying countries vary in their corruption, indicating that some of these deals may be misclassified FDI. We also examine the potential for over-exploitation of water resources in these countries. Sudan, with high corruption and strained water resources, is likely to suffer the most from land grabs. A comparison between 17 SSA countries with heavy "grab" activity and 27 others with lower levels of activity reveals that "grab targets" have the same or better governance and water resources, a finding that contradicts a hypothesis that these deals are harmful grabs but supports one that they are beneficial FDI. Deals called "grabs" may not be.
NB: Related blog posts
Weikard, Hans-Peter and Zetland, David (2012). Overall Assessment Framework. Report D2.3 for Evaluating Economic Policy Instruments for Sustainable Water Management in Europe, an EU FP7 project. Wageningen: Wageningen UR.
Zetland (2011). "Property rights to water for all." In Waughray, Dominic (Ed.), Water Security: The Water-Food-Energy-Climate Nexus. The World Economic Forum Policy Initiative, chapter 9, pp 187-188. Washington DC: Island Press. ISBN: 978-1-59726-736-6
NB: Derived from "Water rights and human rights..." below.
Zetland (2011). "Colorado River Aqueduct," "Metropolitan Water District of Southern California," and "Water, Population and Growth." In Danver, Steve L. and Burch, John R. (Eds.), Encyclopedia of Water Politics and Policy in The United States. Washington DC: CQ Press/SAGE. ISBN: 978-1604266146
Zetland (2011). The End of Abundance: economic solutions to water scarcity. Mission Viejo, CA: Aguanomics Press. ISBN: 978-0615469737.
Back cover: In a past of abundance, we had clean water to meet our demands for showers, pools, farms and rivers. Our laws and customs did not need to regulate or ration demand. Over time, our demand has grown, and scarcity has replaced abundance. We don't have as much clean water as we want. We can respond to the end of abundance with old ideas or adopt new tools specifically designed to address water scarcity. In this book, David Zetland describes the impact of scarcity on our many water uses, how the institutions of abundance fail in scarcity, and how economic ideas and tools can help us direct water to its highest and best use. Written for non-academic readers, The End of Abundance provides examples, insights and ideas to anyone interested in the management of our most precious resource.
Zetland (2008). Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California. PhD Dissertation (Agricultural and Resource Economics). Davis, CA: University of California, Davis. 176 pp. [Published as a book by VDM Verlag (2009).]
Abstract: The Metropolitan Water District of Southern California (MET), a cooperative of retail and wholesale water utilities, serves 18 million people. This case study explains how MET -- as a cooperative -- is inefficient and how its member agencies suffer from this inefficiency. I show that MET is inefficient by demonstrating that its members have heterogeneous preferences over outcomes: Members that are more dependent on MET prefer policies that increase water supply; others prefer lower rates. Although heterogeneity had existed since at least the 1940s, MET avoided conflict well into the 1970s. I explore two possibilities for efficiency despite heterogeneity. First, MET had so much water that it could treat it as a club good, i.e., members did not need to agree on policies over non-rival water. Second, member agencies may have had social preferences (one for all and all for one). Shrinking subsidies and supplies in the 1960s changed water from a club to private good. The end of social preferences is not so obvious, so I asked MET's member agency managers to participate in public goods experiments. They do not appear to have social preferences. If MET is inefficient as a cooperative, we should see evidence of this inefficiency, and MET's pricing policies (setting annual prices in the prior year and selling water for the same price to all locations) provide this evidence. With increasing water scarcity, the damage from these policies is growing. I use 60 years of panel data to show that water increases land value, dependency lowers it, and water may have been misallocated during the 1987-1991 drought. I describe how marginal water can be auctioned after inframarginal, lifeline water is allocated and present experimental results for water auctions in which water managers suffer endowment effects but compete more (relative to students). In addition to the analysis of MET, other contributions are a quantification of bargaining power within an organization (dependency), measurement of water manager cooperation, estimation of the value of water on urban land, and design of auctions for equity and efficiency.
NB: Related blog posts
Abstract: Water meters are necessary for tracking leaks, allocating costs in proportion to use, or setting prices to encourage conservation. They are not necessary when water is abundant or water supply is considered an obligatory municipal service. This paper discusses the program to increase residential water metering in England and Wales. The basic impacts of this program are fairly straightforward (demand falling by roughly 10 percent, a shift of costs to heavier water users), but other impacts are more controversial (greater burden on the poor, no measurable reduction in water scarcity, dubious net benefits). After reviewing these issues, the paper concludes with suggestions for improving the implementation of metering.
I am not working on getting these published (my opinion on academic publishing), but they contain interesting ideas.
Summary: A proposal to make it easier for prostitutes to coordinate to raise prices. (In this situation, I favor market power over price-lowering competition :)
Creating Utility Competition via Performance-Focused Insurance
Abstract: A monopolistic urban water supplier may succeed or fail in providing good service to its captive customers. Regulators can use benchmarks to rank performance and create virtual competition, but quantified outputs are imperfectly correlated with outcomes that matter to customers. Even worse, regulators face weak incentives to identify and target these outcomes. This paper suggests that insurance companies can supplement regulatory effort while improving outcomes, by providing policies based on difficult-to-measure factors such as water managers' effort and talent. Insurance will protect consumers from paying too much for water service or experiencing too many service interruptions.
NB: PDF of a shorter version published in Water Utility Management International
I see what you're doing: the role of gender in cooperation (with Marina Della Giusta)
Abstract: We examine individual contribution decisions in two treatments of a public goods experiment. In the implicit treatment, subjects do not see the average contribution of others in their group, but they can calculate it from the information available. In the explicit treatment, subjects see the average contribution of others in their group. If subjects are rational calculating agents (as suggested in mainstream economic theory), then agents should use all available information to make similar decisions in both treatments. What we see instead is quite different and consistent with the influence of social norms: first, players respond to changes in displayed information; second, individual changes in behavior, taken together, result in the same aggregate payoffs for the two treatments. More subjects in explicit behave as reciprocators (contributing in response to others' contributions) than cooperators or free-riders (unconditionally contributing a lot or a little, respectively). This change in behavior differs by gender: women behave similarly to men when they see the average contribution of members in their group but favor unconditional strategies (free-riding or cooperation) in the absence of a coordinating signal on how to behave. Men, as suggested by Croson and Gneezy (2009), do not adapt to social cues. Women, therefore, are responsible for "balancing" different behaviors groups under different conditions to produce similar outcomes.
Is Google Evil? [pdf]
Abstract: The Google search engine is a researcher's dream come true: Type a few keywords, and ordered, relevant links appear in less than a second. The reduction in searching and sorting effort aids learning, but some claim this benefit is too costly. They say that Google's ranking system (PageRank) reduces our access to dissident, minority or heterodox views. They also claim that Google -- as a one-stop shop for research answers -- reduces our ability to compare, contrast and weigh different perspectives. That is, Google makes it so easy to learn the conventional wisdom that nobody bothers to look elsewhere. I dismiss these naive claims before discussing two negative externalities that come with the huge benefits of Google. One externality is a reduction in community bonds between individuals who consume more commodified knowledge and less common knowledge. The second externality is a reduction in the creation of new knowledge when Google delivers others' presentations too quickly -- removing the Aha! moment when composing a known concept generates a completely new one. To not be evil, Google should act to offset these externalities. I suggest solutions to build community bonds and increase innovation.
Killing the golden goose? Tourism and deforestation in Nepal
Abstract: This paper analyzes economic forces in Nepal's tourism market. Market actors' utility maximization results in inefficient supply and demand outcomes and unsustainable ecotourism. This result is in direct contradiction to the stated goals of the actors, but predictable in the context of the tourism market structure. Proposed solutions include improved property rights and a change in government objectives.
Markets for Afghan opium and US heroin: Modeling the connections
Abstract: This modeling project examines the short-run effects of a program wherein the United States becomes the primary buyer of opium produced in Afghanistan and thereby reduces the global supply of heroin (refined opium). The model graphically shows that supply-side intervention will result in a large decrease in short-run world heroin supply, as well as many beneficial side effects. The U.S. heroin market is neither adversely nor beneficially affected, despite a budget-neutral change in spending priorities.
Moral conflict and the force of law [pdf]
Abstract: In this paper, I review Mandeville's ideas on morality and social welfare before expanding them to analyze the interaction of heterogeneous morals and legal restriction. I demonstrate how laws which are imperfectly correlated with morals can reduce social welfare, support a rent-seeking class and still persist -- even if they are supported by a minority moral belief.
Pointing fingers: Monitoring, evolution and efficiency among 15 middlemen
Abstract: International aid travels from donor to recipient through a chain of middlemen. Middlemen play two roles: as agents delivering aid and as principals monitoring other middlemen delivering aid. As the quality of middlemen falls, shirking (theft) increases, and aid effectiveness falls. While quality has an unambiguous, positive impact, the relative effectiveness of different monitoring techniques is not obvious. I compare different monitoring techniques in simulations of multiple middlemen interacting over many periods. Simulations improve our intuitive understanding of non-equilibrium dynamics and evolution; they also help us rank monitoring techniques. The most-efficient monitoring technique -- tolerating some but not too much waste -- performs better than either overly-strict or more-clever alternatives.
NB: An extension of "Save the poor, shoot some bankers" above.
Psst. Want a real Rolex? [pdf]
Abstract: The common perception is that counterfeit products lower the value of the real thing. Here I show that this is not true. They do lower the volume of sales of the real thing (hurting the manufacturer), but the remaining real things are worth more.
A regulation game [pdf]
Abstract: James Madison is justly noted for writing "If men were angels, no government would be necessary". Unfortunately, few people go on to read his caveats on government conduct, i.e., "If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself." This note outlines the incentives of the players involved in regulation using a stylized model drawn from the vast literature on regulation and how regulation is manipulated. The model is, in turn, used to design an experimental framework for a game that captures the interaction of players in roles of politician, regulator, businessman, activist and journalist under different incentives (payoffs) and institutions (oversight).
The regulation problem [pdf]
Summary: A discussion of how regulation is not only abused by special interest capture, but also by regulators who are corrupt or myopic. I suggest some ways to counter these problems.
Roundabouts in Davis: A comprehensive policy analysis [pdf]
Summary: How roundabouts are safer than intersections, for drivers and pedestrians.
Stop the spork! A proposal for social security reform [pdf]
Summary: Social security should be split into separate programs, one each for pensions and welfare.
Trade liberalization for Brazilian sugar exporters: north or south? [pdf] (with Rowhani, Suzuki and Thome)
Abstract: We measure the gains to Brazilian sugar producers when either the United States or India remove trade barriers to their domestic markets. Our simulation model makes a number of simplifying assumptions to derive supply and demand functions for refined sugar under current policies before relaxing the trade barriers of either the US or India to find new equilibria. Under four US liberalization scenarios, we find that Brazilian producers sell 0.4 to 1.1 million metric tons (1.5 to 4.2 percent) more sugar, increasing their total revenue by 196 to 575 million dollars (3.3 to 9.8 percent). When India liberalizes, Brazilian producers sell 0.8 mmt (3 percent) more sugar and increase total revenue by 416 million dollars (7.1 percent). Post-liberalization world refined sugar prices rise by 1.7 to 5.4 percent. Results are fairly robust to sensitivity analysis. Developing countries may have as much to gain from liberalizing trade among themselves as from developed country liberalization. Since developing countries share similar levels of market development, liberalization may be easier from a political economic perspective. Thus, from a benefit-cost perspective, developing countries might consider putting more effort into South-South trade liberalization.
University market power and fees: They get you coming and going? [pdf]
Abstract: Universities are simultaneously competitors and monopolists. They compete for applicants but act as local monopolists with respect to their students. The theory of the firm would predict that universities set their application fee at a competitive level, while charging monopolistic fees (e.g., transcript fees) for student services. I construct a unique dataset of 248 "National Universities" to test this conventional wisdom. I find that application fees are competitive -- they are set in accordance with costs, not demand (i.e., applications). Transcript fees are not set in accord with either monopolistic or competitive theory. In fact, 36 percent of transcript fees are set to zero. Nonzero transcript fees have a negative impact on alumni giving rates, possibly reflecting myopic cost accounting over profit-maximization. Thus, universities do not necessarily behave as profit-maximizing firms. I test for correlation between plausible objectives (i.e., maximization of applications, total revenue or prestige) and university characteristics. Some characteristics have a positive correlation with one objective and a negative correlation with another -- indicating trade-offs between these objectives.
Water rights and human rights: The poor will not need our charity if we need their water
Abstract: Each year, about 2.8 million people die due to problems with poor water supply, sanitation and hygiene. Over three-quarters of the dead are children. Some argue that a human right to clean water would improve this situation. This paper shows that human rights are not sufficient to improve access to clean water and argues that it would be more productive to give people a property right to water. Because property rights --- unlike human rights --- are alienable, some portion of an individual's rights can be exchanged for access to clean water. Besides this basic equity outcome, property rights could enrich the poor, increase the efficient use of water, and improve water supply reliability in countries with poor governance.
When do tournament incentives matter? (with Stephan Kroll)
Abstract: We test the impact of tournament incentives that vary from non-existent to strong on participant behavior in a linear public-goods experiment to clarify the tensions among absolute performance, relative performance, in-group cooperation and out-group competition. Participants contribute the least to the public good when individual payoffs depend on performance relative to others in the same group and the most when payoffs depend on performance relative to participants in other groups. Contributions fall between these extremes when payoffs depend on an individual's performance relative to others in the same group and other groups, a result that's not significantly different from results under "exogenous" conditions in which only absolute performance matters. These results can be useful for designing compensation schemes, i.e., use tournament incentives for groups of 20 or more where peer-monitoring is difficult but shared compensation in smaller groups where peer-monitoring is easier.
When worlds collide: business meets bureaucracy in the water sector
Abstract: Increasing water scarcity has attracted more businesses and their high-powered market tools to a sector that has been dominated historically by organizations operating under low-powered incentives. This paper compares business and bureaucratic institutions through three interfaces. The first compares bureaucratic tools -- such as water footprinting and conservation technologies -- to business tools that rely on prices and markets to change water consumption. The second explores how high-powered incentives within a low-powered institutional setting can result in harmful outcomes, as when regulations on bottled water, hydraulic fracturing, and food exports mismatch costs and benefits. The third discusses how changes in information make business tools for managing risk from floods and drought more appropriate than bureaucratic tools developed in a past of uncertainty. Institutions that allocate water with appropriate incentives -- high-powered business incentives for economic uses and low-powered bureaucratic incentives for social uses -- will maximize social wealth, but mismatches will increase negative spillovers and waste resources.
Zetland, David (2013). "Water conservation" [draft pdf]. In Whitehead, John and Haab, Tim (Eds.), Environmental and Natural Resource Economics: An Encyclopedia Goleta CA: ABC-CLIO.
Tradition versus dogma: Water metering in England and Wales "Finished" papers
The Amsterdam Sex Exchange [pdf]
Tradition versus dogma: Water metering in England and Wales
The Amsterdam Sex Exchange [pdf]