Alien Smith, Assignment (efficient allocation of scarce resources),

MBA 723-01, Prof. Krzysztof, January 25, 2015

To: Prof. James Bob
From: Alien Smith
Subject: scarcity water allocation

Introduction:
All life daily activities required water including washing, cooking and
drinking. We need water for transport, industry and energy. All life aspect dependent
upon water. As consumption and population rise water is becoming more and more
valuable and a scarce resource. Water resource use at all different levels including
government, individual and business. There are many factors influence the availability
of water beside population and consumerism such as technology that waste more
water. At the current consumption rate increase aquifers, rivers and lakes are drying
up or becoming too polluted to use. In addition, climate change affect the altering
patterns of water and weather around the world causing floods in some areas ,
droughts and shortages in others. Water allocation ways must be applied to overcome
the scarcity of water because we are using water at rate faster than recharge or
replenishment.

Water allocation techniques:

There are many techniques developed to provide efficient allocation of water
resource. These techniques are marginal cost pricing, water markets and used based
allocation have many advantages and disadvantages.

Marginal Cost Pricing:

Marginal cost pricing (MCP) is an allocation technique which set price to
water which is equal to the marginal cost of supplying it. The cost of water supply
include water collecting, transportation to the treating plant, treatment to the quality
standards, distribution cost and monetary and enforcement. There may be higher costs
of supplying water to some uses than to other, so the price could be differentiated to
be equal to the marginal cost of provision to each type of use. Also (MCP) apply
different prices for different qualities.

Advantages of Marginal Cost Pricing:

-

The differences between the total value of water supply and total cost is at a
maximum at the efficient price.
The MCP system prevent from the affection of under price water.

Alien Smith, Assignment (efficient allocation of scarce resources),

MBA 723-01, Prof. Krzysztof, January 25, 2015
-

under the circum stances of scared water, immoderate water use is clearly
unfavorable and result into high social cost.
This approach could avoid the excessive use of water as prices would increase
to invert the comparative scarcity of water supplied.

Disadvantages:
-

The major disadvantages with this approach is the difficulties in defining

marginal cost if self, so if create difficulties when establishing price.
MCP tend to ignore equity matters. In conditions of scarcity, lower income
groups may negatively influenced as the prices could rise to the substantial
level.
Hard accomplishment as it need volumetric control, which is expensive in cost
and hard to administer.
MCP concept are extremely weakly understood by the policymaking and
administration.

Water market allocation:

Water market based allocation is the mechanism of exchange water-use rights,
compared to an interim exchange of a specified volume of water among neighboring
users. The operation of a competitive market has specified conditions. In the case of
water, there are many additional must be considered. This include (1) realizing the
radical allocation of water rights, (2) creating the trade frameworks for legal and
institutional, and (3) investment in basic necessary infrastructure to allow water
transfers.

Advantages:
-

Empowerment of the water users by necessitating their approval to

reallocation of water and indemnification for any water transferred.
As water users provided with the establishment of well-defined rights
encourage the water users to invest in water saving technologies.
The system provide stimulus to the efficient use of water as the sake of saved
water could provide the water users additional income.

Disadvantages:
There are many challenges, related to the water characteristics, influence the
implementation of well-functioning water such as; water measurement, water
rights definition of variable flows, imposing secession rules, investing in the
substantial transformation system and the cash- sale of water to farmers.
User-based Allocation:

Alien Smith, Assignment (efficient allocation of scarce resources),

MBA 723-01, Prof. Krzysztof, January 25, 2015
In local water supply sector, user-based allocation is visible in society wells and
traditional pump techniques, and in other more complex systems controlled by water
and sanitation societies. the Inter-sectoral allocation by users is visible in hamlet tanks
and other domestic water sources used for local water, animal watering, and irrigation.
Advantages.
-

Local need could be met using flexible adapt water delivery forms.
Political acceptability and administrative usefulness and sustainability.
Those directly involved in water use don't depend on strict allocation
formulas as they possess better knowledge on local circumstaraes than what
the agency staff does.

Disadvantages:
-

Pellucid institutional structure require to operate this allocation tool may not
be available always.
As the system do not include all sector users, it could consider to be
ineffective for inter-sectoral allocation of water.
under this approach, industrial demand is not considerable under local
community, so it is not docile to the user based allocation.

Conclusion:
Most countries around the world have combined the water allocation
mechanisms. The most important goal from the applying these techniques is
the efficient allocation of water. Actually, there are many challenges facing
organizations when implanting those mechanisms that are considered efficient.
They are often difficult to accomplish and need supporting infrastructure and
institution. Also, it need costly control and implementation system. These
costs are real social cost and when they are too high then it may not be
economically efficient allocation.
Marginal cost pricing, user based and water market allocation are all
established in a large diversity of contexts. I found there is no single kind of
allocation is superior for all contexts, but I suggest key considerations about
the market water allocation. Market water allocation has the powerful
advantage in providing stimulants for users to seek the highest value
applications for scare water resources. Also, market water provide
indemnification to those who give up water.

References:

Alien Smith, Assignment (efficient allocation of scarce resources),

MBA 723-01, Prof. Krzysztof, January 25, 2015
http://wwwwds.worldbank.org/external/default/WDSContentServer/IW3P/IB/1997/06/01/0
00009265_3970909143002/Rendered/INDEX/multi_page.txt
http://econ.worldbank.org/external/default/main?
pagePK=64210502&theSitePK=475520&piPK=64210520&menuPK=64166093&entityID
=000009265_3970909143002
http://www.wwf.org.uk/filelibrary/pdf/allocating_scarce_water.pdf

Alien Smith, Assignment (efficient allocation of scarce resources),

MBA 723-01, Prof. Krzysztof, January 25, 2015

Alien Smith, Assignment (efficient allocation of scarce resources),

MBA 723-01, Prof. Krzysztof, January 25, 2015
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