Jul 25, 2010 by David Zetland
Listed In: Water Policy
Each year, about 2.8 million people die due to problems with poor water supply, sanitation and hygiene. Over three-quarters of the dead are children. Some argue that a human right to clean water would improve this situation... Part of our Trading Water series.
This article shows that human rights have not improved access to clean water and argues that it would be more productive to give people a property right in water. Because property rights --- unlike human rights --- are alienable, some portion of an individual's rights can be exchanged for access to clean water. Besides this basic equity outcome, property rights could enrich the poor, increase the efficient use of water, and improve water supply reliability in countries with poor governance.
1. A human right to water
Many people support a human right to water, especially with the number of people dying from dirty water and the far greater number suffering from water shortages. But do good intentions lead to good results?
1.1 Some data
If a constitutional right to water is going to be meaningful, then it should have an impact. One way to test for such an impact is to compare statistics for “access to an improved water supply" before and after that right is added to the country’s constitution. We begin with countries that guarantee a de jure human right to water in Table 1. In the twelve countries for which we have full data , we see that the share of the population with access increased from 74 percent before the right was enacted (the base year, which varies by country) to 81 percent in 2006 (the most recent year for data). Can we credit this improvement to a human right, or is some other factor at play? Although the dynamics of development are extremely complex, we can get a ballpark answer by matching these human rights countries to other, non-rights countries at a similar level of development in the base year, to see how access changed for each group .
This comparison shows that access in countries without rights increased from 77 percent in the base year to 82 percent in 2006; in countries with rights, access increased from 74 to 81 percent. Although countries that added rights improved access by 2 percent more, this difference is not necessarily due to the existence of rights, which does not have a statistically significant impact in a multi-variate regression. In fact, the correlation between between access in the base year (when rights existed in none of these countries) and access in 2006 is 94 percent in countries that added rights and 97 percent in matched countries that did not. Put differently, access in 2006 is nearly perfectly correlated with access in an earlier year, not with a change in law that occurred along the way.
1.2 Some analysis
Perhaps the main reason that a right to water does not produce access to water (let alone access to clean water) is that such a right is costly to provide. Another reason — perhaps more important — is that water supply requires a functioning government. Most countries in Table 1 have low Human Development Index (HDI) rankings (meaning that their citizens are poor, unhealthy and uneducated) as well as low quality government. While it is clear that clean water can drive HDI, and HDI can improve governance, the opposite causal flow is probably more important: good governance is a necessary (and perhaps sufficient) condition to increase both HDI and clean water. Transparency International (2008) devotes a large portion of its annual report on governance and corruption to the water sector, giving many examples of provision failure and the disproportionate impact of that failure on the poor.
Thus, it is easily possible that politicians make constitutional promises that bureaucrats cannot deliver, because they don’t deliver much, anywhere, anytime. This failure may persist because these bureaucrats and their corrupt bosses can blame outside factors such as the weather, irresponsible customers, lazy engineers, the gods, and so on, diverting attention from their own (in)actions. Also note which countries are missing from Table 1: countries with good HDI and governance values. They do not need to create constitutional rights to something their citizens already have.
So how is it possible to ensure that people get adequate, clean water if not through constitutional rights? Let’s try a different approach: Instead of giving people a human right to receive water from some government organization, give them a property right in water. Give each citizen his share of the nation’s water wealth. Ownership not only makes it more likely that they will get water, it gives them an asset that they can sell in markets. As a useful side-effect, the markets will increase transparency in and improve efficiency in water allocation.
2. A property right to water
Robinson (2007) discusses property rights as human rights, and Article 17 of the Universal Declaration of Human Rights states that “Everyone has the right to own property alone as well as in association with others." Can water be owned in this way, or is it impossible to possess water as property?
2.1 Private property or community asset?
Water is not your typical good, easily controlled under the conventional norms of property rights. Depending on the situation, water can be a private good (excludable and rival, like a bottle of water); a club good (excludable and non-rival, like a community water system); a common pool good (non-excludable and rival, like an aquifer under the land of several farmers); or a public good (non-excludable and non-rival, like a wetland popular with migrating birds). We need to know how water will be used before we can know how to manage it. That explains why it is not a good idea to give private property rights to water in a wetland, or make a community responsible for an individual’s water consumption. These basic examples concerning quantity get complicated as we add dimensions for space, time, temperature and purity. Although it’s clear that coordinated management is necessary at the community (or watershed) level, it is not clear, ex ante, whether property rights would make such coordination easier or harder.
What is interesting to note is that failure in water management can often be traced to overscaled institutions, rules and operations. Although decentralization from a few powerful bureaucrats to many weak owners may not seem sexy, it actually reduces risk and increases efficiency. Even if we assume that the bureaucrat is trying to serve the interests of the owner, we know that errors will be less costly when there are many small decisions, disaggregated information is likely to be heard and acted upon, and a variety of opinions and decisions drive allocation (Hayek, 1945; Surowiecki, 2004). If we consider that bureaucrats and politicians may allocate based on their interests — and not those of The People — then this efficiency grows even larger (Tullock, 1967).
2.2 Ownership rights or use rights?
Most people forget that water is often owned by the People, and that the State distributes the right to use water — the usufruct rights — such that (in theory) its social value is maximized. For most of history, we owners have not paid attention to how our water was used, but increasing scarcity has piqued our interest and passion. In the developed world, we want to know that our water goes to important environmental protection or food production; in the developing world, we want our water to slake our thirst. When those goals are left high and dry (as in Haiti), we turn our attention to how our water is used, to exercise our ownership rights.
Now the first objection is that most of us cannot use “our share" of water, because we are not farmers or fish. That objection goes away if we are allowed to sell our water to those who will use it. But selling water raises a second objection, that we should not sell water when we need it to live.
We can address this concern by dividing ownership rights in two — reflecting lifeline need and lifestyle demand. The first set of “need rights" would be inalienable, fixed and equal for every person, at approximately 135 liters/capita/day . The second set of “want rights" would be alienable, vary with supply, and subject to changes in population. These “trade water" rights could be rented but not sold. The ban on sales would protect owners from sharp dealing and communities from drying out. This temporal safety could be augmented by a volumetric ceiling on exports from an area that could be relaxed as the community learned of export impacts.
So, how much water would fall into each category? Using the definition and data for renewable water supplied by the United Nations Environmental Programme , we find that Canadians would get 135 lcd as an inalienable lifeline right and still have 239,265 lcd to allocate as they please. Although that number seems preposterously large, the numbers in water-scarce Israel (with 611 lcd of renewable water) would be 135 lcd for lifeline water and 476 lcd for trade water. Total renewable supplies are 64,100 lcd in Australia, 4,300 lcd in Haiti, 4,200 lcd in Somalia and 27,500 lcd in the US.
Astute readers will already have noted that rights to water are not the same as delivery of water, especially when the owner/user is distant from his property. That separation is not a problem. It would be easy to establish a system of accounting and fiduciary managers – similar to the system in the mutual fund/unit trust industry – that would manage, for a small fee, the physical water that individuals own (but may never see).
2.3 Private or public management
Ownership will not mean anything if it does not come with some sort of delivery component . Because delivery is complex, it seems better to leave the details on how this system would work to the local, private or public delivery organizations that will buy trade water in markets and deliver it to customers who pay for service with the money they earn as sellers in those markets.
Market prices will clarify the value of water and increase the competition to deliver efficiently. This competition will not just take place among existing delivery organizations; the transparency of markets will encourage non-traditional organizations to get into water management, one of the most conservative and least innovative business sectors. New blood, ideas and management techniques will benefit customers, in the same way that deregulation of US air transport sparked massive improvements in service and pricing.
But what about those horror stories of abusive monopolies? Galiani et al. (2005) analyzed privatization in Argentina and found that child mortality fell 8 percent where water services were privatized; the largest reduction (26 percent) happened in the poorest areas. Even with Cochabamba, the evidence is mixed. After kicking out Aguas del Tunari (AdT), a consortium of Bolivian and multinational companies, Cochabamba’s community activists were disappointed to find that their revolutionary rejection of capitalists did not bring a revolutionary improvement in service by SEMAPA, the public water provider that resumed the provision of bad service that the World Bank had used to justify the original service contract to AdT (Shultz, 2009). It turns out that public or private ownership is not as important as community oversight (Rijsberman, 2004).
2.4 Trading and valuing water
Trade will also alter the way that we value water. In most parts of the world, and in most uses of water, water’s price merely reflects the cost of delivery — wells, pipes, treatment, and so on — not the value of water in use. This cost-pricing often leads to shortage (and sometimes surplus), since the price of water reflects the cost of supply, not value. In a market, price would rise above cost (delivering some profit, or resource rents, to the owners of that water), until demand fell to equal supply, the market cleared and the shortage was eliminated. Recall that this market is for trade or lifestyle water, so we do not have to worry about the poor going thirsty. In fact, they will prefer high prices, since they have water to sell.
Higher prices will upset agricultural interests that pay very little for water today, either because they have usufruct rights or benefit from political favoritism. They are unlikely to be the preferred recipients of trade water; citizens may prefer to put more water into Nature, even if such a reallocation reduces water for food. This bias means that farmers are not going to get a free ride — they will have to pay for water. On the other hand, this outcome will not be devastating (compared to a drought, for instance) because farmers are used to buying inputs, and trade water will just be another of those.
Rather than assure the poor that the government is allocating their water in a way that serves their best interests (i.e., the interests of society, of which the poor hold a majority share), the provision of tradable shares to the poor (and everyone else) allows them to choose how to allocate their water and benefit from those choices — turning their “dead capital" into working wealth (De Soto, 2000) . Decentralization will reduce corruption. Citizens will be keenly interested in maximizing the value and minimizing the waste of their assets; they will compare prices and uses with others and put pressure on agent-brokers who deliver poor results.
Besides these equity arguments are the efficiency benefits of a market in tradeable, commodity water. This water, like any commodity, should go to highest and best use, and the gains from trade will be split between whose who own and sell it and those who buy and use it. In that process of allocation, a price for water will emerge. That price will rise in shortage and fall in abundance. Prices would create beneficial impacts throughout the water business, as they would explicitly reveal costs, prices, values and efficiency that few understand today, due to missing owners (anxious to maximize the value of their assets) and markets (where prices are clear to all). Although waste was not so important in a past of abundance, it is a bigger problem with today’s scarcity. If water is too precious to waste, then we must broadcast its value in objective and concrete terms — via price.
The beneficiaries of greater equity and efficiency are likely to be those most in need: the poor who suffer disproportionately from corruption and the small businesses that do not lobby for political favors.
This article suggests a way to provide water as a human right while recognizing water’s economic value. The human right to water is acknowledged by an allocation of an inalienable right to a certain per capita quantity of water. The economic value of water is recognized by allocating alienable rights to the remaining water and encouraging trade in those rights. Some of those trades can allocate water to the environment; other trades will move water into economic uses, according to added value. Sellers of tradeable rights can use their income to ensure that their lifeline water is delivered. A property rights allocation increases both equity and efficiency, the former by the allocation of rights — and their value — to every person, the latter by trading water from owners to users.
 Spain and Uruguay are dropped because they had 100 percent access to water at the time that their constitutional provision was enacted. Ethiopia and Venezuela are dropped because the former had no pair-country and the latter has no data on access to water after 1995; DR Congo is dropped because it added a human right so recently.
 The analysis uses single or multiple countries that had GDP(purchasing power parity-adjusted) per capita — GDP(PPP)/c — within 5 percent of rights countries’ GDP(PPP)/c.
 Water delivery requires more than just pipes. Other fixed costs include the cost of drilling wells, building dams, installing treatment facilities, etc. Variable costs that change with operating volumes include the cost of energy for pumping and treating water, water quality control, customer service, and so on. Administrative and personnel costs are also important; they can be classified as fixed or variable.
 Chenoweth (2008) estimates that 135 lcd is enough for human health and economic and social development. BAWSCA (2009) reports residential consumption ranging from 185–1,266 lcd (median 316 lcd) for communities of the San Francisco Bay Area. Zetland (2009) reports that municipal and industrial consumption ranges from 383–1,239 lcd in Southern California cities.
 “Total actual renewable water resources (TARWR): The sum of internal renewable water resources and incoming flow originating outside the country. The computation of TARWR takes into account upstream abstraction and quantity of flows reserved to upstream and downstream countries through formal or informal agreements or treaties. It is a measure of the maximum theoretical amount of water actually available for the country" (UNEP, 2009).
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Galiani, S., Gertler, P., and Schargrodsky, E. (2005). Water for Life: The Impact of the Privatization of Water Services on Child Mortality. Journal of Political Economy, 113(1):83–120.
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Keywords: Human rights, property rights, institutions, political-economy, water markets, water quality, trading water
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1 Comment on this article.
Thanks for the interesting article. In reading this I can’t help but be drawn in by some of the operational complications that would be involved in a system like this.
How would a market based on rough water budget calculations survive if the estimates change with either advances in science or climate? Would peoples shares be downgraded? Would this destabilize the water market?
Also, how would these rights be transfered between generations in a dynamic population?
I am sure these questions have been answered before (in the water sector or another) but I am pretty new to the water economics world.
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