Los Angeles Seeks Water: But Owens Valley Doesn't Like Coase

Los Angeles needs more water (http://www.ladwp.com/ladwp/homepage.jsp). The Mayor has even agreed to increase the block tier rate in the second pricing tier. To protect the poor, he has not raised the first tier (the lowest) rate. The price is still not high. In the second tier, a 748 gallon increase in water consumption costs you $5.48. That's a pretty low price per ounce. At that price, a six pack of beer would cost (548/(748*128))*72 = 41 cents. My students would be a lot more interesting in class if they faced that marginal price. Set the price at 10 cents a gallon and we would see some serious water efficiency in California. No more grass, no more "water shortages". Suppose the state received 1 cent per gallon in new tax revenue. 35 million people using 25 gallons of water a day (I know this is too low but post efficiency innovation) would yield $7 million dollars of tax revenue a day or over $2 billion per year. This would be fine with me. That would be a "double dividend".


But, since politicians do not believe in demand side solutions --- we turn to the supply side. LA is purchasing up more land in Owens Valley. Is this for vacation homes? No. Without knowing all of the details, there must be water rights attached ot this land. LA Times article on water imports . While the Coase Theorem tells us that this purchase makes good sense, the locals are not happy. Los Angeles is accused of "imperialism" and a natural resource grab in a colony sense.