Matt Kahn on bad water pricing

Matt Kahn at UCLA is one of those economists whose work I cite quite a bit. His blog is smart and funny and edgy, and he has up a very good post comparing how the LA Department of Water and Power’s pricing regime makes no sense from a sustainability perspective. To wit–he compares the pricing schedule he faces with that of Candy Spelling, TV producer** Aaron Spelling’s very wealthy widow.

The water pricing story in southern California is larger than life with movies like Chinatown out there (great movie), but the DWP’s past attempts at implementing marginal cost pricing should be a case study in implementation for young environmental economists everywhere. To make a long story short, marginal cost pricing was on the table until Valley constituencies–all predominately single-family houses with yards–got out their calculators. The resulting outcry prompted deal-making that, while perhaps reassuring to us lovers of citizen participation, landed us with the pricing mechanism we have now. The basis for the changes revolved around an equity concern–as it so often does–not about people who are actually impoverished, but over the costs to people who are solidly middle class but not affluent per se. In order to protect these folks from what seemed prohibitively high water prices, we struck the deal that Matt discusses, considering usage as a function of lot size and occupancy. The end result bears little resemblance to marginal cost pricing or pricing based on social equity goals.

For people like me who study social equity and justice, the political discourse surrounding most pricing schemes tends to be entirely about equity and yet entirely miss the point about equity. We tend to protect the wrong groups–as in those with some discretionary income if not a lot– from the consequences of their consumption choices because we worry about affordability rather than the proper pricing signals and affordability.

**Aaron was the purveyor of such time-wasting, high-camp glory as “Dynasty” and the original “90210.” O the cat fights! O the shoulder pads! O the gigantically big hair!