Question

Explain the conventional methods used in the allocation of water.

Answer 1

Both public and market driven methods of water allocation is used for such purpose which can be explained as follows:

1) User Based Allocation - In such kind of allocation mechanism, an institution or a community build a allocation system through some mechanism like pools, lakes, reservoirs, etc. to preserve the water which can be used for the purposes and needs of the community or institution. A pool of farmers storing water for irrigational purposes of using water pumps or tubewells in a community which are used by specific communities or institutions are known as user based water allocation system. This system is basically managed by local people or institutions so it might lack proper regulatory measures without any specifically defined laws of water rights. The Goverment should step in for ensuring transparent management guidelines and water right laws that should be followed by the users and institutions to make it successful.

2) Public or Administrative Water Allocation System - In this mechanism, the Government regulates the supply of water in different sectors like agricultural, industrial, environmental and municipal. The Government constructs dams and bridges for allocation of water to industries and municipalities and providing large scale irrigational facilities to farmers.

In such a method the Government also regulates the disposal of wastes into the water and use of lakes, rivers and oceans for industrial purposes. Its main advantage is that, the Government can take measures to prevent water pollution and ensure proper allocation of water to all the sectors of the economy and the society at large, as it is considered to be a public good. But the major disadvantage is that the market for water vanishes as it is supplied free of cost or at a subsidized rate by the Government. So people don't understand the value of water and disutilize water in a lot of ways. And the expenses on water storage, preservation and allocation of water is hard to recover as it is a common good. The opportunity cost is lost as it becomes a free good and the society shall suffer its loss in the long run when fresh water won't be available for consumption. So for successful implementation of this method, the Government should regulate the quantity of water being supplied to each household and construct proper sanitization facilities for efficient allocation. And formulate environmental laws to protect the water bodies across the nation and curb water pollution by industries and corporations.

3) Water Market - One of the conventional methods for water allocation is the use of water market for buying and selling of water. In a spot water market the neighbours go into temporary contracts for water allocation and in market mechanized water allocation water use rights are implemented and regulated by the Government sometimes, to facilitate proper regulation and functioning of the market with set out laws. Here the users of water would understand the opportunity cost of water as it has many uses and priortize themselves accordingly as they are paying money as an exchange. The farmers shall also get priviledged in this system of allocation as they can buy and preserve water for irrigation facilities. But the valuation and pricing of water is quite complex and without proper Government regulation. This market is prone to market failure.

4) Marginal Cost Pricing - In this concept the marginal cost of water should be equal to the marginal supply of the last unit of it. The equipment, storage and transportation costs are considered in this concept. Here we also consider the external, social, environmental and opportunity cost. So when water is misused the opportunity cost is considered and the society loses the equal amount of fresh water from the welfare aspect. This concept lacks its explanation to define what should be the marginal cost of water. And is disadvantageous in case of water shortages, in which case the poorer section of the society would not be able to afford it at an increased cost due to shortages. However this concept ensures sustainable utilization of the non renewable resources like water. Disutility is minimized and efficient and optimal use of water takes place and also saves it for the society at large. While using this method, if the economic cost can be reduced by the Government, by providing with subsidies to the lower income group, and implementing proper regulatory measures, then it is one of the best conventional method to implement from the economic point of view.