The economist in me is angry…


over obviously stupid water policy! The picture below is a household water tank, an all too common fixture on private properties throughout Nicaragua.

Depending on your neighborhood in Nicaragua, you’re pipes are likely to go dry for 10+ hours per day because there is not enough water for continuous service. Sometimes the dry periods follow a fixed schedule, but sometimes the dry times are random… for example when you’re coming back from a sweaty jog and you need to get ready for work.

I hired a maid to clean my house (which does not have a tank), and the first thing she did was to fill used containers (gallon jugs, bottles, etc) with water. Seemed like odd behaviour until I experienced an unexpected dry spell and needed the water to bathe.

Dry pipes make bad policy for several reasons:

  • Encourages a water tank “arms race,” in which people put effort into privately hoarding water
  • Leaves no incentive to save water while pipes are wet, which would allow more consistent water service
  • Denies consumers water even if they desperately need it (Just burned my finger! Need to shower before work!)

Note that if everyone had water tanks, making the pipes go dry would have no effect on saving water until at least some people’s tanks ran out. So dry spells would have to be longer and people would buy bigger tanks and dry spells would have to be longer still.

Better policy would be to raise the price of water, so that everyone thinks twice before letting it run. Revenues can be plowed into water investment. To protect poor people, water could be priced differently in disadvantaged neighborhoods (the cable company and the electricity company already do this in Nicaragua). The effect on farming should also be considered and policy perhaps modified appropriately.

The principle is clear: dry pipes make bad policy. Phil should write a haiku about market clearing prices.


David Zetland, Water Economist and author of Aguanomics, has provided more analysis on my post:

  • He describes possible causes of the water shortages
  • He suggests an alternate solution to protecting the poor against increasing prices

On the second point, while I suggested different prices in different neighborhoods, he suggests allocating a certain quantity of cheap water to each individual, with a sharply increasing price after the cheap water is consumed. That solution was the topic of his dissertation research.


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One Response to “The economist in me is angry…”

  1. Money Market Account Says:

    cable companies are also offering broadband internet these days and the cost is cheap too ~”;

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