From the comments at Marginal Revolution
Even more odd than the notion that whomever does own the rights would have access to data to signal when marginal returns occur and when it would make sense to sell/lease those rights to another party.
Fustercluck: I don't understand. If the next mega-gallon can produce $100 worth of crops or $200 worth of fish, are you saying that a farmer who owned it would not sell it (for between $101 and $199) to the fisherman? Just out of spite? Or stupidity? That strains credulity.
Posted by: David Wright at Jun 30, 2007 2:39:41 PM
I don’t know if Fustercluck is saying that, but in case she isn’t, I’ll say it. I’m saying it loud and clear. I know that you’re going to want to explain Coase to me, because if I don’t think that property rights allocations are the solution, then I must not understand the Coase Theory. Dude. I understand the Coase Theory. I have read, graphed, proved and taught Coase. But understanding isn’t agreement, and I do not agree that a Coasian allocation of rights would lead to an optimal distribution of water in the Klamath Basin.0
Coase requires low transaction costs, which is a stumbling block between two multi-party resource users, but maybe not insurmountable. It also requires perfect information. That is harder. But the real problem is that farmers are not profit-maximizers along every variable that they manage. Oh no they aren’t.
Farmers are generalists, and often very good ones. They keep everything on their farms running at, say, seventy percent1
. But they are manifestly not nearing the marginal returns on nearly everything they do, and they do not respond to profit motives the way you think they do. Two concrete examples, off the top of my head:
1. Farmers on furrows can improve their irrigation efficiencies drastically by applying surge flows for the first hour of the irrigation event. Send a huge pulse of water down to the end of the furrow and that means that the rest of your water will reach the end of the furrow faster and infiltrate more evenly. It is worth an increase of about twenty percent to your distribution uniformity. In any irrigation event, using surge flows means that you can use ten or fifteen percent less water. In California, at least, water is now predominately billed by volume. They could save money by switching to surge flows.
There are no technological barriers to adoption of surge flows. You do not need new equipment. I suppose you might have to buy more siphons, but those are not a substantial cost. Surge flows require slightly more labor, but again, the costs of siphons and labor are small compared to the costs of the water they buy now.
It is, I tell you, a bitch to convince furrow irrigators to switch to surge flows. The work on surge flows has been done for decades and they are still not widespread. You tell a farmer about surge flows and he looks at you, says he never heard of such a thing. You say that it is working real well for those guys in the Friant, and he says they probably have different soils. You say, hundreds of dollars every time you irrigate, and he says he’ll think on it. Three years later you go back and he is still thinking.
2. Farmers in California at least, and my impression is that California farmers are as sophisticated as any in the world, profoundly over-fertilize. They over-fertilize until it burns their crop and then they cut back. Their excess fertilizer runs off their fields, carrying little tiny dollar signs with it. Your theory of profit-maximization says that farmers should apply fertilizer until the fertilizer-yield curve flattens out, and then stop paying for more fertilizer. But they don’t. They fertilize long past that point. Why?
I’ve wondered at this one myself, and the best I can figure out is that they are thinking superstitiously, putting the magic crop-guarantee on their fields, sure that more is better. It isn’t. But all the labels and all the instructions from the ag advisors and all the wasted money on fertilizers don’t stay their hand in the moment of application.
Even in the absence of complicated calculations about whether someone would pay them more than they could reap from their next unit of water, real farmers in the real world do not respond to a profit motive the way a rational economic actor would. What is going on?
Well, farmers are notoriously slow adopters. Many are strong traditionalists, and chose an autonomous life-style because they do not want to have to change. It is a privilege they sacrifice money for. For some farms, the biggest source of change is generational succession.
More than that, though, is that farmers are incredibly busy, doing a very wide variety of things. They manage machinery, the crop, fertilizers, pesticides, harvest contracts, labor, water, soil, and their personal lives all the time
. Frankly, they don’t
manage all of them well enough to be finessing things like whether they could make more money selling the next acre-foot or using it themselves2
. Some of them get all-fired-up for one or another aspect of farming. I remember one guy (surface drip on almonds, Sac Valley) who had an incredible
system. His distribution uniformity was the highest I’ve ever seen. He went to irrigation conferences. He would know how much water he’s putting on and the value of the next increment. But I remember him because he was an exception. And, I’d be surprised if the time he spent on his irrigation system didn’t come out of somewhere else on his farm.
If you absolutely must
believe that farmers are rational economic actors, then I could agree with you thusly: They are optimizing their personal preferences in time allocation and operational costs and adherence to tradition and desire for isolation and autonomy. I’d believe that. But they are far, far from maximizing any of several types of resource use, and they are never going to as long as farming is a generalist profession. What farmers are doing is a fine way for them to do business on their own farms. But it is not an acceptable way to allocate resources that matter to people and fish outside their farms.
A Coasian property allocation cannot work in a system where half the participants are not profit-maximizers in that resource3
. Transaction costs are a problem and information is far from perfect. But even if those could be fixed, you’d have to overcome the problem that they are at the limits of their management capacity and more money in any particular area doesn’t tempt them enough to change what they actually do.0
I said below that I would trust Klamath irrigators to run the river to maximize their own profit. I am contradicting that now. I believe they would suck the river dry in support of their farming operations. I do not believe they would balance the value of the next unit of water they could apply to farming against the value they could get by selling it to fishers. (I remember that I also once said that a Coasian allocation would be the solution to drainage problems on the West Side. I'll stand by that. The growers are much bigger and more industrialized on the West Side, the problem is simpler and there is only the Feds on the other side of the negotiating.)1
You know who does do a much better job at nearly every aspect of farming? Large scale agribusiness. Those guys have Cadillac irrigation systems and they do not waste much. They have a person who does just irrigation, all the time. I would guess that they are equally proficient across the board. I’m opposed to large scale agribusiness for other reasons though (the vulnerability of monocrops, the mining of soils, the destruction of habitat they wreak (which is worse than small-scale farming), the concentration of wealth, the long-distance transportation of food.). Weighing my opposition to large scale agribusiness against their efficiencies in resource use is a particularly painful dilemma for me.2
Even when growers do take a strong interest in their own irrigation, they don’t have a good handle on what goes on in their fields. They aren’t the ones putting out siphons and moving pipe. They hire laborers to do that, and they do not pay their laborers enough to get a good job. A grower tells his irrigation foreman to have his crew move the siphons by five the next morning so that the night set was exactly twelve hours like the day set. The irrigation foreman isn’t going to wake his guys by five when they only make seven dollars an hour, and they get it done at six-thirty, right before the grower’s first drive-by. Day set is 11 hours; night set is 13 hours; your efficiencies are down and you wasted a couple acrefeet you could have sold in your imaginary market. But you get the job you pay for, and growers do not pay their irrigation laborers enough for finesse management3
I don’t know much about salmon fishers, but I can imagine an equally persuasive story saying they have lines to mend and boats to maintain and weather to watch and they are busy
. You would have to convince me that on top of that, they are attentive enough to the Klamath River to decide whether they want to spend the next piece of money to get an extra cfs in there since it is predicted to be hot for the next week and that’ll raise the temperature of the river by a half a degree, increasing fry mortality by ten percent. BEFORE YOU COMMENT:
I know how bad you need to tell me one more time about Coase and say “Well, when the incremental value of water is high enough to fishers, they’ll pay enough to get the farmer’s attention.” BEFORE YOU DO THAT, you must
explain to me why that is different from farmers fore-going free money now (surge flows, fertilizer over-applications). Tell me why, based on your observations of what people really do on farms (or maybe in another comparable industry where it worked). “Because the theory I learned in economics is right and all
my textbooks say the same thing” does not contradict the widespread practices I’ve seen or tell me that a Coasian allocation of property rights would work.