Kill Your Status Quo

Journal articles
(My Google Scholar)

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]
Abstract: We examine the Dutch national groundwater tax (GWT) --- a "win-win-win green tax" that promised to simultaneously provide revenue to government, reduce the relative burden of other taxes on productive behaviour (e.g., income tax), and improve environmental outcomes. We find that the GWT generated revenue without having a noticeable impact on production incentives or environmental health. Although the GWT is often cited as an example of environmental economics in action, it was neither designed, implemented nor operated in accordance with environmental goals. In many ways, the GWT was just another source of revenue --- and one that bothered special interests. The Dutch government revoked the "inefficient" GWT on December 31 2011.
   NB: The publishers entitled it "...death of Dutch..." Arg! PDF of a shorter, Dutch version published in Water Governance.

Zetland, David (2013).* "All-in-auctions for water." Journal of Environmental Management 115:78-86. [pdf]
Abstract: This paper proposes a novel mechanism for reallocating temporary water flows or permanent water rights. The All-in-Auction (AiA) increases efficiency and social welfare by reallocating water without harming water rights holders. AiAs can be used to allocate variable or diminished flows among traditional or new uses. AiAs are appropriate for use within larger organizations that distribute water among members, e.g., irrigation districts or wholesale water agencies. Members would decide when and how to use AiAs, i.e., when transaction costs are high, environmental constraints are binding, or allocation to outsiders is desired. Experimental sessions show that an AiA reallocates more units with no less efficiency that traditional two-sided auctions.
   NB: Shorter version published in Solutions Journal and related blog posts

Zetland, David and Christopher Gasson (2012). "A global survey of urban water tariffs: are they sustainable, efficient and fair?" International Journal of Water Resources Development (29)1: 1-17. [pdf]
Abstract: This paper examines the relations between tariffs and sustainability, efficiency and equity, using a unique data-set for 308 cities in 102 countries. Higher water tariffs are correlated with lower per capita consumption, smaller local populations, lower water availability, higher demand and a lower risk of shortage. Aggregating to the national level, higher tariffs are correlated with higher GDP and better governance. A different country-level analysis shows that a higher percentage of the population with water service is correlated with better governance, higher GDP and a greater risk of water shortage. The relation between water prices and service coverage is statistically inconsistent.
   NB: Related blog posts

Zetland, David (2011).* "Intra-organizational conflict: origin and cost." The Economics of Peace and Security Journal 6(1): 12-21. [pdf]
Abstract: This article tells the story of an organization -- the Metropolitan Water District of Southern California -- that suffers from internal conflict. The story is important not just because the organization supplies about half of the urban water in southern California, but because it highlights how conflict can arise and persist inside an organization. The key to understanding this story is the role of institutions (rules and norms), and how institutions may fail to evolve with circumstances. [Derived from Zetland (2008)]

Zetland, David (2011).* "How markets can end persistent intraorganizational conflict." The Economics of Peace and Security Journal 6(1): 22-27. [pdf]
Abstract: The Metropolitan Water District of Southern California (MET) is the largest water utility in the United States, wholesaling water to about 20 million residents. MET is legally structured as a cooperative among 26 member agencies. This article examines why internal conflict at MET over water pricing and water allocation persists and what may be done to resolve this conflict and improve the efficiency of water delivery and usage.

Zetland, David (2011). "Water markets in Europe." Water Resources IMPACT 13(5): 15-18. [pdf]
Abstract: Water markets in Europe are underdeveloped because they are difficult to implement within existing institutional constraints or inefficient from a transaction cost perspective. This article describes Europe's nascent water markets, explores the factors affecting their development (or lack thereof), and speculates on where and how markets may emerge in the future.

Zetland, David (2010). "Save the poor, shoot some bankers." Public Choice 145(3-4): 331-337. [open access]
Abstract: Bilateral or multilateral organizations control about 90% of official overseas development assistance (ODA), much of which is wasted. This note traces aid failure to the daisy chain of principal-agent-beneficiary relationships linking rich donors to aid bureaucrats to poor recipients. Waste results when aid middlemen (un)intentionally misdirect ODA. Waste can be reduced by clarifying domestic goals for ODA, using fewer middlemen with greater intrinsic motivation, empowering recipients, and/or replacing bureaucracy with markets.

Prufer, Jens and David Zetland (2010). An auction market for journal articles." Public Choice 145(3-4): 379-403. [open access]
Abstract: We recommend that an auction market replace the current system for submitting academic papers and show a strict Pareto-improvement in equilibrium. Besides the benefit of speed, this mechanism increases the average quality of articles and journals and rewards editors and referees for their effort. The "academic dollar" proceeds from papers sold at auction go to authors, editors and referees of cited articles. Nonpecuniary income indicates the academic impact of an article -- facilitating decisions on tenure and promotion. This auction market does not require more work of editors.
   NB: PDF of a shorter version in German and related blog posts

Zetland, David (2010). "The real estate market index." Real Estate Finance Journal 27(2): 77-91. [pdf]
Abstract: The Real Estate Market Index (REMI) combines sales price, sales volume and days on market into a summary measure of market activity or liquidity. The REMI, which rises with price or volume and falls with days on market, is more sensitive to market sentiment than indices based on price alone, e.g., the Case-Schiller Index. The REMI is useful to people who want a measure of market liquidity. Data from over 19,000 sales that occurred between January 2000 and November 2009 in Mission Viejo, California illustrate the calculation, calibration and application of the REMI. [xls data file]

Zetland, David, Carlo Russo and Navin Yavapolkul (2010). "Teaching economic principles: algebra, graph or both?" The American Economist 55(1): 123-131. [pdf]
Abstract: We find that student performance on questions posed in the standard heterogeneous combination of algebraic direct demand and graphic inverse demand is significantly worse than their performance on questions posed in homogeneous combinations. Since this performance deficit persists with advanced students, it seems that economists' canonical presentation of demand may hinder, rather than help, learning. We recommend that Principles students begin with the homogenous, direct combination of algebra and graph before turning to the standard direct-inverse combination. This modification would create benefits on the extensive margin -- reducing attrition from confusion -- and intensive margin -- increasing comprehension for all students.

Zetland, David (2010). "Water reallocation in California: A broken hub will not wheel." Journal of Contemporary Water Research and Education 144(1): 18-28. [pdf]
Abstract: California's water transfer system depends on the Sacramento-San Joaquin Delta to move water. Unfortunately, the Delta's ecosystem appears to be suffering from this use -- and other uses. After discussing the stakeholders in the Delta, the causes of ecological decline, and the choices for change (including a radical political-economic market), I conclude that business-as-usual is over, that any solution is costly, and that the politicians and bureaucrats in the middle of this process benefit from conflict and inaction. The Delta will remain broken for the foreseeable future.
   NB: This article has two typos: p23: "(discussion actions and costs in Section "Fight and Compromise")." should have been deleted. p27, note 9: should say "Desalination and reclamation cost about $1,200 and $600, respectively."

Zetland, David (2009).* "The end of abundance: How water bureaucrats created and destroyed the southern California oasis." Water Alternatives 2(3): 350-369. [open access]
Abstract: This paper describes how water bureaucrats shaped Southern California's urban development and put the region on a path of unsustainable growth. This path was popular and successful until the supply shocks of the 60s, 70s and 80s made shortage increasingly likely. The drought of 1987-1991 revealed that the norms and institutions of abundance were ineffective in scarcity. Ever since then, Southern California has teetered on the edge of shortage and economic and social disruption. Despite the risks of business as usual, water bureaucrats, politicians and developers continue to defend a status quo management strategy that serves their interests but not those of citizens. Professional norms, control of the discourse, and insulation from outside pressure slow or inhibit the adoption of management techniques suitable to scarcity. Pressure from increasing population and politically and environmentally destabilised supplies promise to make rupture more likely and more costly.

* Derived from Zetland (2008)

Books, chapters and reports

Zetland (2014). Living with Water Scarcity. Mission Viejo, CA: Aguanomics Press. ISBN: 978-0615932187.
Back cover: Do you worry that there is not enough water for people, the economy and environment? Do you wonder if the water in our taps and rivers is safe or polluted? Do you want to know if farmers waste water, utilities charge too much, or bottled water destroys ecosystems? You're not alone in asking questions. The headlines say "drought, pollution, conflict and insecurity," but the stories offer few solutions. Living with Water Scarcity clarifies the connections among personal and social water flows in an accessible style. It describes the origins and costs of water scarcity and explains how to address it with fair and pragmatic policies. You and your community can live with water scarcity -- just manage water as the precious resource it is.

Zetland, David (2014). "Water conservation" [draft pdf]. In Whitehead, John and Haab, Tim (Eds.), Environmental and Natural Resource Economics: An Encyclopedia Goleta CA: ABC-CLIO. ISBN: 978-1-4408-0119-8

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


Working papers

Rational waste: spending water to buy power [no draft available]
Abstract: Water scarcity -- a perception that demand is greater than supply -- is a rising concern around the world (Zetland 2014). This perception can be addressed by decreasing demand or increasing supply. In many cases, it seems appropriate to reduce demand for water, as those reductions "free" water for other uses and reduce the demand for complementary inputs such as energy that are also targeted for conservation. But, in some cases, it makes sense to increase supply. That action, in these cases, may be "sensible" (e.g., a refugee camp needing potable water) or "wasteful" (e.g., desalting water for a golf course). This paper explores "wasteful" examples -- that may not be -- in San Diego, Almería and Riyadh.

Tradition versus dogma: Water metering in England and Wales
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.


"Finished" papers
I am not working on getting these published (my opinion on academic publishing), but they contain interesting ideas.

The Amsterdam Sex Exchange [pdf]
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.