PS1_Sample Essays - Essay Question Before the ruling,...

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Unformatted text preview: Essay Question Before the ruling, farmers benefit because they have a regular water supply. They can grow more robust plants or perhaps even get two harvests out of their crops and sell them at a higher cost while the externalities of running the river dry is passed along to members of society who like river recreation. Their marginal private cost curve is artificially low because they are benefiting from dam water which they do not explicitly pay for. Salmon, salmon eaters, the ecosystem, and recreational users all lose because they cannot access the river water since their rights are not protected. After the ruling, all users of the free-flowing river benefit and the farmers lose. Recreational users, salmon, and wildlife have their property rights protected and therefore gain benefits from the use of the river. Farmers, on the other hand, lose because they do not have a legal right to use the water from the dam. Consumers of cheap agricultural products from these farmers could lose. These might be the same people who enjoy the free-flowing river. Likewise, farmers who benefited from the dam water might also be recreational users of the free-flowing river or salmon eaters. There could be a market resolution if farmers and free-flowing river users could get together and trade to a social optimum. Realistically though, this is unlikely since the three rules of the Coase theorem are not fulfilled. The costs to getting all of the recreational users together and accounting for the value of wild salmon and a preserved ecosystem is too high. It would be difficult to gather all of the information from all of the actors in the Friant Dam situation to make an accurate trade (who really values what and how much?). It might be possible to enforce a solution (not allowing farmers to draw water for certain parts of the year), but that is not guaranteed either. Before the ruling, it seems farmers’ rights are more important because they get to run the river dry for a significant portion. Some policies to resolve this bias would be to make new legislation that still allocates some water for farmers but does not have the river run dry. The government could bring in economists and ecologists to see what the minimum amount of water needed is to let salmon populations return. We could charge recreational users a fee and from those funds turn the river area into a park. The fee could be used to maintain and preserve the river area and would reflect how much the river is actually worth to recreational users. We could also charge farmers higher prices for the water (the true cost of the water with all the externalities included) to have the market price for river water reflect the true cost. 3. According to the conflict between recreational user and farmers, there is a gain for farmers while there is a lost for recreational users under the situation before the judicial ruling. As the farmers are the one who benefit from using more water for irrigation of crops, they gain more. However, the over use of water on irrigation of crops leads to a lack of water flow to maintain salmon population and ecosystem is also being destroyed, recreational users lose. But, there is a gain for recreational users after the judicial ruling as there is a decrease for the irrigation water of crops for farmers, who lose after the judicial ruling. As water flow increases to support the salmon population and better ecosystem, recreational users gain. There is a market resolution called the Coase Theorem that can be applied into this issue. In this case, government intervention is not always needed to bring water use to its socially optimum level, provided that either recreational users or farmers own the property right of water. In fact, this can also be done by the negotiation between two groups. The Coase Theorem works when both recreational users and farmers have full information over MB and MC of water use, so they can negotiate an agreement over the use of water. Also, property right should be clearly allocated and enforceable. On the other hand, there should have low transactions costs in the bargaining process. Under these conditions, the solution to the bargain will be maximally efficient, irrespective of who has property rights, creating the same optimal allocation of water use. Under the current system, the farmers’ rights are more important than the recreational users’ rights. It is because before the judicial ruling, the farmers are now enjoying a benefit of using more water for irrigation of crops. However, recreational users’ right is less important when comparing with the farmers’ rights. Basically, the recreational users suffer from a lost of salmon population and an unbalance ecosystem because of a lack of water flow as a larger amount of water is given to the farmers for their crops. In order to solve this problem efficiently, we can use three policies, including a tax, a subsidy, and a restriction or quota. First of all, the government can imply a tax on farmers for their use of water. Farmers will need to pay for their use of irrigation water, and the social optimum level of water use can be reached. The second policy consists of a subsidy to farmers for reducing their amount of water use. For example, the government will pay farmers a subsidy for each unit of water that is not used. Finally, the restriction or quota on water use is a command and control approach. The government will restrict the use of water to the social optimum level. ...
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PS1_Sample Essays - Essay Question Before the ruling,...

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