Тег: Plumbing

How will private utilities work? After all, there is only one pipeline, so how can water be supplied to everyone at different prices?

анонимный вопрос

I answered a similar question in quite some detail analyzing all stages of water supply in a free market, from finding a water source to its delivery via pipes to the end consumer. But you are not so much interested in how various market actors will negotiate the coordination of geological exploration, extraction, pipe laying, and repair—but rather what mechanisms will affect the tariffs for the end consumer. And, presumably, you have a concern that without central controlling bodies, tariffs will skyrocket.

Here, I suggest you familiarize yourself with the analysis of such a mechanism for electricity supplies that I provided previously. For the water market, the hard upper limit for tariffs turns out to be the cost of water production or supply by the consumers themselves: this could be buying bottled water in a store, collecting rainwater, desalination, recycling—depending on who the consumer is. But slightly before the price hits this natural barrier, the factors of competition and demand elasticity will kick in: expensive water will be conserved, and at a certain point, the supplier will realize that it is more profitable to earn from volume rather than markups, especially if alternative water suppliers do not jack up their prices and seize the market while the miser tries to squeeze their few remaining clients dry.

At the same time, of course, I do not rule out that water will be supplied to different houses by one company at different prices, taking into account the length of the pipes, for example, or the different competitive environment in different districts. Finally, a price markup is also added by the company that manages the building, if such a company exists. For instance, in Thailand, where I vacationed in the spring, it seems that every condominium has its own water price, because in one they water the garden, in another the pool is larger, in a third it is smaller, and so on. This is normal.

Here is an example of a condominium where water will certainly be expensive

What about water supply and housing and communal services in a free market?

анонимный вопрос

Let me talk only about water supply so as not to dilute, pardon the pun, the topic.

To provide a city dweller with water, it is necessary to:

  • find a water source
  • extract the water
  • deliver the water to the consumer

For all of this to work in a free market, each of these stages must be able to be carried out without coercion and bring profit to the person who carries it out. Now, let’s go through the points.

Find a water source

Given the presence of bodies of water, this is a relatively simple task, so let’s consider a more difficult case: searching for an artesian basin. To carry out this work, it is necessary to hire a specialized organization that will deploy its recording equipment on the ground, use it to obtain data from depth, process it, and draw conclusions about where the boundary of the basin is and, therefore, what the water reserves are. That is, it is necessary to reach an agreement with the owners of the land where the survey will be conducted, pay them the agreed compensations, and carry out the exploration. This task is not unsolvable.

In Russia, where all subsoil belongs to the state and land can belong to private individuals, geological explorers pay landowners for land damage, and the profit will ultimately go to whoever acquired a license for extraction from the state. In a free market, it would more likely be like in the USA, where subsoil rights belong to the landowners, meaning they are even more interested in the exploration of the subsoil beneath them. Also, as far as I could understand, the data obtained during exploration possess a certain redundancy, and therefore the disagreement of some landowners or the impossibility of surveying due to the location of buildings on the land will not significantly hinder obtaining a result. In other words, at this stage there are no particular difficulties for the market—there are ordinary entrepreneurial risks, where the money for exploration is paid, but no basin is found.

Extract the water

Here, again, the greatest theoretical difficulty is the situation involving an artesian basin. The thing is that it is usually large enough that the water intake wells exploiting it can be located on the land of different owners. If there are many consumers and little water, it is important to prevent the tragedy of the commons, otherwise the source will not be able to replenish naturally due to excessive extraction.

Several such cases are analyzed in detail by Elinor Ostrom in the book “Governing the Commons”, where she presents the main principles that extraction organizations must adhere to in order to prevent the degradation of the resource. Here, they will need a fixed agreement on water extraction norms, a monitoring body, and the ability to stop abuses, using a graduated system of fines. Moreover, interestingly, it is very important that there be a possibility for contract enforcement, but no less important that no state attempts to interfere in the process of concluding the contract itself. That is, for the confident resolution of such types of property conflicts, the existence of a developed free market is not just desirable, but absolutely vital.

Deliver water to the consumer

The question of who will lay and repair the water pipeline is similar to the question of who will build roads. Roads are built by those who need them, namely the owners of the real estate to which the road leads, because it increases their value. In the same way, a water pipeline passing through a plot of land increases its value, because it means that a water-consuming facility can be built on the land and then quickly and easily connected to the water supply.

So the picture here will be roughly the same as at the exploration stage. Either the landowners pay for the pipes on their land themselves, or, at least, they grant the water supply organization permission to lay the pipes, for money or free of charge—depending on what they agree upon.

Summary

Roughly the same approach can be applied to other infrastructure objects and other spheres of housing and communal services. The process of providing a service is broken down into stages, each of which must bring profit. At each stage, property conflicts may arise, which must be resolved by concluding contracts, and these contracts will either provide direct mutual benefit, such as a land lease agreement for laying communications, or be the result of a compromise, such as an agreement on water extraction quotas. And all these complexities, of course, do not compare to the complexities of organizing the same thing through central planning mechanisms—that is where the task is truly solved haphazardly: it consumes tax money and leaves the consumer dissatisfied.