Simplicity.

May 7, 2009

Water Rights
Awash in waste

Tradable usage rights are a good tool for tackling the world's water problems

There is a way out. Australian farmers have the right to use a certain amount of water free. They can sell that right (called a "usufructuary right") to others. But if they want more water temselves, they must buy it from a neighbour. The result of this trading is a market that has done what markets do: allocate resources to more productive use. Australia has endured its worst drought in modern history in the past 10 years. Water supplies in some farming areas have fallen by half. Yet farmers have responded to the new market signals by switching to less thirsty crops and kept the value of farm output stable. Water productivity has doubled. Australia's system overcomes the usual objections because it confirms farmers' rights to water and lets them have much of it for nothing.

Tradable-usuage rights have another advantage: they can be used in rough and ready form in huge countries such as China and India that do not have meters to measure usage, or strong legal systems to enforce such usage rights. Instead of sophisticated infrastructure, they depend on local trust and knowledge farmers sell a share if their time at the village pump. A system like that works in parts of Pakistan's Punjab.

Usage rights have flaws. At first, they confirm existing patterns of use that are often inefficient. Farmers can cheat, as Australians have found. They are, at most, a good start. But they would be better than what exists now, which is sporadic rationing and the threat of a giant crisis. Or what may come next, a mandatory mass conversion to vegetarianism.

Taken from THE ECONOMIST
April 11th 2009 issue

Okay.. so this article basically talked about Market based solutions- tradeble permits for External Cost in Production. In this case depletion of water is the MEC and the production activity is farming.

In paragrah 1, it shows that this solution is effective as after implemention, the market will allocate resources to more productive use.

In paragraph 2, it shows that this solution is easy to implement.

Lastly, in paragraph 3, it shows the flaw of this solution, which is it requires constant checks by governments, if not, people can cheat easily.

Have fun.

Max Khoo De Yuan (18)
09 S115

♥ 10:35 PM