Title: Conclusion
Full Citation
Permanent Link: http://ufdc.ufl.edu/WL00003201/00001
 Material Information
Title: Conclusion
Physical Description: Book
Language: English
Publisher: The Conservation Foundation
Spatial Coverage: North America -- United States of America -- Florida
Abstract: Richard Hamann's Collection - Conclusion
General Note: Box 12, Folder 11 ( Conservation Foundation - Symposium Papers on Water Allocation in Eastern U. S. - 1956 ), Item 54
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
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Bibliographic ID: WL00003201
Volume ID: VID00001
Source Institution: Levin College of Law, University of Florida
Holding Location: Levin College of Law, University of Florida
Rights Management: All rights reserved by the source institution and holding location.

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if no profit margin for capital--i.e., interest-would be earned. This result

is characteristic of many "overhead" investments in underdeveloped economies

and would therefore be applicable to an underdeveloped sub-economy such as

a particular state. In part, the result stems from an ambiguity in the

method of valuing associated costs. If a water resource project allows ex-

pansion in manufacturing at the expense of irrigation, should we value

manufacturing labor costs at the prevailing market wage for manufacturing

labor or at a lower level reflecting the use of labor as agricultural wage

workers? The higher is the value we impute to labor, the lower is the margin

that can be assigned to capital. This uncertainty of imputation is elimina-

ted by amortizing the capital cost and looking to the change in net product

for guidance in determining the merits of a change in water use.

V. Conclusion

Economists will see in the foregoing a statistical investigation

based upon generally accepted economic theory. A similar study could be

focused on capital, labor, or some other natural resource, but the relative

inelasticity of its supply and the singular method of its allocation among

competing uses lend special significance to water. In spite of the pointed

dependence of the models on the water supply, other components of the

economy would not be ignored. By implication all associated resources of a

region are part of the story, since the productivity of water depends upon

the variety and quantity of complementary resources. Each model would

contain implicit, as well as explicit, assumptions regarding complementary

resources in addition to explicit assumptions regarding the use of water.

The trick is in estimating the values of the products of the various resource

complexes under different assumed conditions of demand. So long as the

investigation is limited to a small segment of the national economy, we can

with reasonable safety ignore the effect of changes in regional supply on market


price, although full account must be taken of the reverse: the effect on

regional supply of a change in market price.

A particular array of models would not necessarily reveal the single

best pattern of water use, even if by "best" is meant only the use of water

that maximizes net product. The best might be scme unknown pattern not

included in the study. Furthermore, the non-price elements of various

patterns can be compared with each other and with monetary elements only in

a loose and probably inconclusive manner. Opponents of Echo Park Dam,

protectors of Indian rights and wild game habitat, and advocates of family-

size farms all rest their arguments on propositions not readily susceptible

to a price analysis; hence their positions can neither be affirmed nor

denied on the basis of monetary calculations.

Any attempt to delineate a region's path of growth would be in-

conclusive if the study of water use stopped short of examining the market

controls and other influences over the employment of resources used in

conjunction with water. Unless investigation were extended at least

tentatively in this direction, it would be impossible to distinguish between

barriers to growth imposed by water policy and barriers created by other


Wherever possible, a distinction should be made between average and

marginal net product per unit of water. If it is a question of dedicating

fixed amounts of water to various uses, the average product would be

significant; if it is possible to vary the proportions among various uses,

the margin product would be significant. For example, variations in the

amount of water available for navigation may bear little relation to changes

in income from water transportation. A navigable channel is usually de-

signed for a specific depth of water; increasing the water supply may even

be detrimental rather than beneficial to shipping. Reducing the supply of



water below a given minimum, on the other hand, will result in a sudden

drop of productivity to zero. Where fixed technical relations prevail,

marginal variations in water use are usually of little consequence. On

the other hand, suppose that a relatively continuous relation exists between

increased use of water and yield of crop per acre. This relation is likely

to show an increase in output from a given amount of land as additional

amounts of water are consumed, up to a certain point of water use, and

then a decline. The increase in output might be marked by increasing

marginal productivity over a certain range of water use, followed by dimin-

ishing marginal productivity as water use increases further, until marginal

productivity is zero. This is the point of maximum output in relation to

water use. Where variable technical relations prevail, the marginal as

well as average values are significant for policy making. It is probable

that some continuity in the variation of water consumption characterizes

most uses, lending to marginal values more significance than to average val-

ues. Unfortunately, data on marginal variation, whether aqueous or pecun-

iary, are even scantier than data on average values.

The quality of guidance afforded by the results will depend upon

the accuracy of the assumptions underlying the models; but even accurate

results can be overborne by the introduction of non-monetary calculations.

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In spite of these limitations and shortcomings, the results should serve

as a guide for resource use that can be defended by criteria of public

welfare. Bren if this guide were successfully prepared, however, there

would still remain the tasks of creating the machinery and adopting the

legal modes required for putting the blueprints into effect.

Neither the rule of prior appropriation nor the rule of riparian

rights Possesses flexibility of control in the requisite degree de ed

by the public welfare. Both are devices adopted by a society guided by

laisse-fiples to ensure a peaceful determination of who "owns"

the water initially, and, by relatively indirect incorporation into the price

system, (mainly by sale of land rather than water), of how these rights

can be transferred from one user to another. Each provided a simple and

workable solution so long as the scarcity of water was a c artivo v

loc ted phenomenon; which was the case even over the vast area

of the iouhwesc qas population was sparse and economic c ty

mainly ranching and minin While the water was scarce enough, it was

sufficient for those who were there, except during periods of drought.

But now the water shortage has assumed a more ominous character. It

is no longer a periodic visitation occasioned by sub-normal rainfall; it

is a permanent condition, increasing in intensity. The changing nature

of the problem, together with an increase in the area which it plagues,

has put a considerable strain on the old rules, tried and true as they

have been in the past.

Unless the trends of supply and demand take a different turn, a

reconstruction of water law is probably in the cards. When the change

has been completed, it is likely that the laissez-faire doctrines under-

lying the present rules will have been abandoned. Circumstances may

compel the states to go so far as to reacquire all water rights, and with

Y/ -


these in hand to create a corporation designed to ell water to all

users, just as a municipal water company now does; its operations would

parallel even more closely that of a privately operated state-wide gas

or electric utility. The state water corporation and its subsidiaries

would probably acquire all pertinent physical structures, including

those privately owned, and would be responsible for all new capital in-

vestment in water resource projects. Its activity would be limited, of

course, to the storage, sale, and transmission of "public" water, em-

ploying the concept "public" as it is now commonly used in statutory and

common law. The corporation would probably deal with individual users

only in exceptional cases; for the most part it would make its contracts

with subsidiary local water user associations--municipalities, rural co-

operatives, and the like.

By being itself in possession of all capital structures as well as

title to water, the water corporation could operate with maximum flexi-

bility in the public interest. Where circumstances warranted, the corpor-

ation or its subsidiaries could enter into relatively long term contracts

with final users. These contracts can guarantee the price, quality, and

supply of water for the duration of the contract, and accept the liability of

a suit for damages in case the corporation cannot fulfill its terms. Some

users could be subsidized; others might be charged what the traffic would

bear. The price and investment policy followed by the corporation would

reflect certain of the larger objectives of federal, state, and local gov-

ernment: whether and to what extent government should participate in

economic developmental and control activities.

There is ample precedent within the American economy for much more

control by government over the use of water than is now being exercised.

We have commonly tolerated encroachment upon property rights or interference



with free market processes whenever failure to do so would clearly jeopardize

the public interest. As the shortage of water mounts in intensity, we are

likely to put more faith in administrative control as it is exercised by

politically constituted bodies than in the market responses of those who

hold property rights in water.




average value of water..........Where value is established by imputation,

the average value of water per unit of water for a particular

use would be equal to the following equation:

Total Value of Product minus Total Associated Costs divided

by the number of units of product sold. This quantity is then

divided by the Number of Units of Water Used in order to get

a value per unit of water. (However, see "value of water").

economic rents..................Prices paid for land, labor, capital or

enterprise in excess of the minimum amount necessary to induce

sale of these factors on the market.

elasticities of supply or demand...

Elasticity refers to the relationship between a change of quan-

tity and a change in price, other things remaining constant. A

simple measure of elasticity is equal to the following:

SChange in Quantity
SChange in Price

gross national product............Value of the nation's output of goods and

services. (See gross product.)

gross product....................Value of the output of an economic system

after eliminating double counting. That is, raw materials are not

counted both in raw farm and also in semi-processed or processed


gross state product..............Value of a state's output of goods and

services. (See gross product.)

Glossary -2-

marginal revenue products Change in total receipts of a business

enterprise as it expands output by one unit. This is a rough

approximation, but it is clear enough. Where an expansion of

output requires the seller to lower his price, total receipts

do not increase in proportion to an increase in output, but by

something less, conceivably a negative amount. Hence marginal

revenue product can be positive, negative, or zero.

marginal use.....................The use, such as of water, that contributes

the smallest addition of gross or net product; the "least valuable"

of an array of uses.

marginal value .................. The market value of the marginal use.

marginal value of water..........As in the case of average value, it is a

concept based on imputation, and for a particular use is equal

to the residual value of that amount of product yielded by the

use of one more unit of water, after subtracting from the mar-

ket value of the additional product the associated costs that

are incurred.

The marginal value of water can diverge from the average value

because of several circumstances: diminishing physical product-

ivity of water, change in the market price of the product,

change in the productivity of associated factors, or change in

the prices of associated factors. (See "value of water".)

market value................... .the money worth as measured by market price.

Glossary -3-

market value of the marginal

product......The price at which one more unit of output

will sell. This may or may not be equal to the marginal revenue

product, depending upon the slope of the demand curve for the

product of the particular seller.

monopoly......................a market in which there is one seller.

monopsony.......................a market in which there is one buyer.

net income
and..........................These terms are used synonymously. They
net product

mean gross product less depreciation charges. The economic unit

to which they refer can be the nation, the state, or same other

unit. The Department of Commerce reserves "net product" for the

value "gross product minus depreciation" and "national income" for

"net product minus indirect taxes." This terminology is not nec-

essarily the most useful for analysis at the state level since

some of the indirect taxes constitute income for the state at

the expense of consumers outside the state and therefore is anal-

ogous to "income" of state residents.

oligopoly ........................a market in which there are so few sellers

that each seller has some control over market price.

oligopsony....................... a market in which there are so few buyers

that each buyer has Some control over market price.

private and social benefits......The concepts are parallel to private and

social costs. Private benefits include those directly assignable

to an individual for which payment is normally expected by the

vendor of the thing yielding benefit.

Glossary -4-

private and social benefits (continued)
Social benefits are those for which direct
assignment is difficult. For example, good highways directly bene-

fit operators of truck lines by reducing costs of operation. Ihis

is a private benefit. An additional social benefit is the increase

in specialization within the economy that an efficient transporta-

tion network makes possible.

private versus social costs......private costs are those incurred by identi-

fiable units e.g., the cost of labor to a manufacturer. Social

costs are those incurred by society as a whole. For example, air

pollution in vicinity of factory may cause disease or dirt not com-

pensated for by owners of the factory.

state income payments............The sum of income payments received by resi-

dent persons and businesses of the state. At the national level,

transfer paymentS- e.g., welfare payments--are excluded from national

income. A case could be made, however, e including at the state

levelftransfer payments that are borne by out-of-state taxpayers.

value of water...................This is a concept that is still vague in the

writer's mind. It could mean the price paid for water; it could mean

the value of the product of water after subtraction of costs other

than for water, or it could mean a residual after non-water costs

and costs incurred for water are both deducted. Since, however, as-

sociated costs, as well as costs of water, are themselves dependent

on the relative scarcity or plenty of water, the definition as a

residual value exhibits the difficulty of establishing "value" by

imputation. From a "marginal" point of view it could mean the addi-

tional net product that results from having one more unit of water

available--without any deduction of costs; this meaning would make

little sense from the point of view of "average value", however.

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