The paper “ Allocating Water Efficiently” is a brief variant of the assignment on macro & microeconomics. The competing parties in this case are the irrigators and households. Efficient allocation of surface water to these the two parties has to be pegged on two issues; getting a balance between the two competing users, which certainly means changing the demand, preferences or product prices among others. Secondly, it insinuates a consideration should be given regarding universally acceptable ways of dealing with the water year-to-year variability in water flows such as evaporation, precipitation, and runoff.
Therefore factors are simple; will the allocation of water to the irrigators and households will equalize NMB for the two users? Regardless, two critical factors that must be given consideration here is that; first, allocation must strike a balance between the two competing users (household and the irrigators). But again be ready to deal with changing demands. Secondly, there should be acceptable ways of handling the year-to-year variability in water flows as earlier mentioned. The conceptualising is as shown belowEfficient allocation of water as scarce resourceKEY1. MSB for irrigators in $/Q2.
Full allocation to households3. Marginal social benefits to irrigators which is already very elastic4. Marginal social benefits to households which is less elastic5. MSB for households in $/Q6. Full allocation to irrigators7. This region represent wet yearBased on the diagram above, there are apparent marginal social benefits of the two users. The diagram as represented assumes that there is no MC to the usage of water by the competing parties. The LHS axis named 1 represent the MSB of the usage of water by both parties and the amount of water to be used has been represented by the two vertical axes.
The more one moves from left to right more water will be available to households and conversely to the other party. The opposite points will therefore mean the intersection point where all the waters are allocated to either party. However, where there is wet year as represented by region marked 7 irrigators and household users will get more but more efficient to reallocate water to irrigators as their point is evidently elastic. Imposing larger water reductions on either irrigators or householdsKeeping the new allocation efficient will assess other variables before ascertaining whether to impose water reduction s on either party.
For instance, some water usages or users may have public good properties such as maintaining biodiversity or a case where flowing waters have heritage values and therefore allocated to either party might compromise this. Therefore one issue that will guide the process is fluctuations in supply. As long as changes in supply can be anticipated the equal MSB rule still applies. That is, if both parties will be satisfied with the allocated as indicated in the figure above, then the status quo will be maintained.