Water as an Economic Good

By: Rebecca Power

In today’s world, communication in the public sphere is not for the faint of heart. Communicating about how we value and manage water is no different. One of the practices that critical thinkers and effective communicators use is to first offer some common definitions.

Economists have defined four potential categories for all “goods” in our economic system:

1. Private goods can be owned and consumed by one person without affecting others. A bottle of water (or soda, or beer) purchased at a grocery or convenience store falls into this category.
2. Club goods are those goods which a person can pay a set “entry” fee and then have unlimited access to the good. Unlimited use of a club good by one person does not compromise the use of the good by another. Think Netflix or cable television. When it comes to water, we sometimes treat our urban water utilities like a club system; however, unlimited use of water by enough people will eventually compromise its availability for others.
3. Public goods are those that can be broadly accessed without diminishing the availability for another user – like watching a beautiful lakeside sunset. In the eastern part of our region, where water is most plentiful, we often describe water as a public good. However, what we mean by public good is often related to a property right owned by the public or a constitutional human right water rather than public good in the economic sense.
4. Common-pool resources, such as groundwater, rivers, and wild fish stocks, can be broadly accessed. However, there is the capacity to limit use through societal rules (social norms or regulation). Society may choose to impose limits to use because common-pool resources can be depleted. For example, farmers that irrigate crops may want certainty that the water will be affordably available for their children to continue to farm. Or lakeshore property owners may want to protect water quality so that their property holds its value.

So why do these categories matter? Assigning a water management decision to the right economic category will influence whether that water is managed sustainably or unsustainably. As competition for finite water resources continues to increase, economists can help us develop rules that work for the benefit of all water users. Note that rules can be in the form of government regulation and incentives, best practices set by professional organizations, or social norms developed and kept current by local communities. Regardless of how they are set and enforced, well-developed rules ensure that water is available and safe for all water users.