If the potential support is not proportional to revenues, then the tangency will deviate so that the group with more political clout receives lower prices. Both of these situations can deviate from the case of the discriminating monopolist which would charge prices based solely on the relative costs of providing service to each group. Rosen, develop a cooperative game model that examines how coalitions might be built for water markets within a district . This model uses an approach developed by Sexton to assess the voting patterns of agricultural production cooperatives . In this cooperative setting, R&S examine if a policy which maximizes the net benefits fora number of individuals that represents the majority in the district will be chosen over another which maximizes the total net monetary benefits to the members of the district. R&S assume that a single popular vote institution is used to transmit political influence to the district’s board and managers.’ The implicit assumption is that political power is in proportion to the institutional allocation of votes. R&S examined the Imperial Irrigation District-Metropolitan Water District sales transactions and how lID farmers decided to accept or reject various sales terms and revenue allocations. R&S surveyed 31 farmers about their farm operations to estimate the net benefits from alternative trading scenarios. They then created a voter-decision model using a pair-wise voting procedure that simulated farmers’ choices based on the expected net benefits to each individual.
The result was that the policy which would have generated the greatest total benefits to district members-a defacto assignation of water rights to individual land owners before transfer-lost to a policy which gave the greatest net benefits to a majority of eligible voters-a combination of conservation measures to preserve water supplies to farms and a distribution of A useful institutional perspective is to compare how the operations and financing of water districts reflect the principles of cooperatives : these districts provide service “at cost” as non-profit organizations; benefits generally are distributed in proportion to use of the managed resource; returns to equity capital are limited and generally gained through directly-related activities, such as selling irrigated crops; and the district is controlled by the member-users, which meshes with the concept of vertical integration of the water supply with agricultural production. Several advantages exist in the cooperative management of input resources . The joint allocation of resources avoids the transaction costs and risks associated with markettype exchange institution, e.g., post-contract opportunism by a party . By extending or avoiding market power, it can encourage development of asset-specific relationships by removing risk of contract breach . And it provides a mechanism for avoiding, mitigating,25 litre plant pot spreading and sharing risk among members . The internalization of allocation decisions can avoid government interference in the exchange institution, e.g., federal reclamation law acreage limitations . The model presented here builds on the three political-economy models that explain district behavior from different perspectives, but rely on a common assumption. The assumption is that members try to influence district managers to choose management policies that distribute benefits in proportion to political power while maximizing aggregate benefits subject to that constraint.
The district’s objective, acting as a cooperative, is to maximize net benefits to all members, but the non-profit constraint means that the district’s “rents” must be distributed among its members indirectly, perhaps through changes in water rates or allocations. This distribution is the function of political power within the district, measured in terms of voting share in this case. Politically, water districts in California are marked by a variety of governance-selection schemes . Most of these are directed through state general district acts, of which there are 38 types; in addition, over one hundred special-district enabling acts were in place by 1994 . Selection of the governing board may be through a vote of eligible persons or appointment by the county board of supervisors. Eligible voters may be residents of the district and/or property owners. Votes may be counted as one-person/one-vote or be weighted by property acreage or assessed value per acre. California law tends to favor landowners in governance procedures . While the popular vote is predominate in older districts in the Sacramento and east San Joaquin Valleys, the property-weighted scheme has grown in use, especially in the west and south San Joaquin Valley served by the newer state and federal water projects where corporate farms, rather than family-owned farms, are more common . Even older districts have switched to land-owner enfranchisement.’ Each of the districts’ management-selection procedures give different incentives to district members and managers. Economic theory leads to an expectation that an assessed-property-value weighted voting scheme would most closely mimic that of a vertically-integrated firm. Agricultural property values reflect the net returns to crops, and to the degree that water application is correlated with land values, the votes would be allocated in proportion to implicit ownership and utilization of the water resource. However, because land values reflect other factors such as soil type and relative market location, value-based voting should not simply follow the same pattern as that for single-product firms.
District “ownership” shares are not necessarily in direct proportion to the value-added from water application, as would be case in a private enterprise where ownership would be based on output value, not input quantities. Acreageweighted schemes reflect a presumption that the amount of water applied per acre is roughly constant across farms and that marginal land values attributable to water use do not vary substantially across a district. This scheme is less likely to match the profit-maximizing interests of the landowners than value-based methods. A popular-vote method tends to divest the district from a solely profit-maximizing objective. Equitable distribution of benefits from district operations become more important. The interests of individual landowner farmers can diverge from that of the district, e.g. in the extra district sale of water rights. Finally, board-appointed districts represent an interesting enigma. In theory, because the district board supposedly represents the interests of the entire county, the decision-making process for the district should be quite divergent from maximizing the profits of those receiving water supplies. However, these agencies are relatively obscure except to those directly impacted, and these boards more likely are “captured” by their customers and reflect their informally-transmitted desires. In summary, it is evident that the motives for the districts can be quite different than the classic assumption of “profit-maximization. ” The various governance rules used by different types of districts, such as voting eligibility and weighting, can undermine some of the principles in cooperative management in achieving efficiency. Stated simply, managers are likely to distribute benefits from operations of the district in proportion to the political strength of its members rather than to economic contribution. Reliance on popular vote rather than property-weighted vote can create a wedge between those defined as members versus users, and benefits may be rebated on a basis different from use. These benefits might extend beyond simply delivering water to reassigning responsibility for water rights, deciding if water sales need approval to protect certain interests within the district, and setting district charges and taxes to achieve economic goals other than efficiency. In general, we might expect if the votes are distributed in proportion to the value of agricultural land,30 litre plant pots bulk then the district will act to maximize the value to landowners. If on the other hand, the electoral selection process uses a one-person/one-vote rule, we might expect that the district will attempt to maximize the value of water-related economic activity regardless of its ties to the land. These action can include maintaining the water resource for tenant farmers who do not hold title to the land but may have significant fixed investments in their farm, and considering local farm-service businesses if they are eligible to vote. An assessed-value-weighted voting scheme appears more likely than a popular-vote system to mimic the prototypical “firm” in economic modeling due to the closer correlation between the governance process and the distribution of benefits from water use. Water sales tend to benefit landowners because the districts’ rights are most frequently tied to the land. Thus, we expect property-weighted districts to be more receptive to selling into a water market than districts with other types of governance structures.
Using some assumptions about how the motives for various district members might differ, we can build a model that assesses how the various political structures might influence the districts’ management decisions. In a property-based voting system, we can assume that the preferred policies will tend to lead to accrual of district benefits in land values. For the popular vote structure, we must identify a proxy for those actions that target benefits towards water related activities. As the voting structure moves away from being directly proportional to the value of water use, we might find that the district’s manager will pursue policies that benefit non-landowners. Landowners are more likely to be focused on the bottom line=-for example, which generates more revenues per acre, growing crops or selling the water. On the other hand, tenant farmers require water to work their land-they are unlikely to receive payment for water sold by the landowner through a district. Local businesses also rely on farming activity, not just income flows to local landholders that might result from water sales. In a popular-vote system, the district may choose to both limit outside water sales so as to maintain farming activity, and to price water in a way that maximizes other related economic activity, e.g., fertilizer and equipment sales. Observing the former is difficult when water markets do not exist for many other reasons such as state policy. However, we may be able to find a suitable proxy for the latter.In the case of tenant farmers, they may be reluctant to plant high-value, water-saving crops due to uncertainty about the their tenure on the land. Orchard crops require several years before they reach maturity and must produce for up to two decades to recover the initial investment. Tenants tend to show higher discount rates than owners, leading to less investment in resource-conserving technologies that are capital intensive . More efficient irrigation technologies generally require sunk investment that can be lost by a tenant if the landowner takes action to stop farming on the land. In response to these risks, tenant farmers would be more likely to grow water-intensive field crops with less-efficient irrigation technologies. To support these practices, the district would lower the per unit price of water so that higher application rates do not cause higher costs, and rely on other revenue sources such as per-acre fees or taxes and electricity sales. Higher property taxes have the added advantage for tenants that the elasticity of demand for land limits the incidence of the tax on rents, i.e., landlords must absorb part of the tax in their rents to stay competitive in the agricultural land market. The existence of sharecropping arrangements reinforces this tendency because landowners often must pay the delivered water charge, which comes out of their rent earnings. Local businesses may prefer two types of outcomes. The first is that crops be grown that require a high level of purchased inputs, e.g., fertilizer or equipment. Field crops generate less employment per acre-foot of water than other crops , which might imply that other local inputs such as farm equipment are utilized to a higher degree in production. The second is that business activity remain at a fairly constant or growing level, and that it be of the same nature year-to year . This gives businesses a greater assurance that they will recover their investment in equipment, knowledge and good will. To serve both of these desires, the district will tend to establish pricing structures that do not penalize water use, particularly if the water is for long-established crops. Again, this perspective encourages support for a two-part pricing tariff in which the per water unit charge is relatively small compared to the fixed or property-based portion.This is done in a broad framework that encompasses a large number of districts. For this reason, the model developed here takes the perspective of a district as the decision-making unit. In this way, we can draw inferences about a broad range of districts while controlling for other factors that may influence their behavior, e.g., source of water, dominant crop type, the types of farming operations.