AEB 2451: Economics of Resource Use Lecturer: Misti Sharp
1
Assignment 10: Common Pool Resources
Instructions: You may work in groups but you must turn in your own work! Indicate on the front page who you worked
with (max 3 people). An electronic copy must be submitted online before midnight on Friday. Show all work so that
partial credit may be given. This homework is worth 15 points total.
1) Read about the Atlantic Cod and the human “Tragedy of the Commons” article:
http://www.wbur.org/cognoscenti/2014/12/03/overfishing-georges-bank-david-ropeik and reflect on
why, economically, a fisherman like Tony could earn so much money without a degree “back in the
day.” Were the Cod fishermen of years passed truly taking into account the full opportunity cost when
they were behaving as they were? (3 points)
2) Suppose that the total benefit and total cost for a cod fisherman in the 1970s was as given in the table
below where one boat could garner $9,000 in total fish revenue and $5,000 in total costs. Use this
information to answer the next 3 questions.
a. Complete the following table rounding to 1 decimal if necessary (3 points):
# of
Boats
Total
Benefit
(000s)
Total
Costs
(000s)
Average
Benefit
Marginal
Benefit
Marginal
cost
1 9 5
2 17 10
3 24 15
4 30 20
5 35 25
6 39 30
7 41 35
8 43 40
9 44 45
10 44 50
b. If the fisher were to have accepted the scientific evidence instead of fighting it and stopped
fishing at the economically efficient level, how many boats would have been released into the
Gulf of Maine? (3 points)
c. Given that the cod fishery was subject to tragedy, how many boats were likely released into the
Gulf of Maine? (3 points)
3) Read the following article and discuss how we are responding to the lack of Cod in the US:
https://www.usnews.com/news/best-states/maine/articles/2017-03-24/maines-cod-fishermen-have-
worst-year-in-history In the “Global Scarcity” part of the course, we talked about becoming self-
sufficient in food production. Would those tactics work for this fishery resource? Why or why not? (3
points)
AEB 2451: Economics of Resource Use Lecturer: Misti Sharp
2
4) Read the attached article by Lynne and Burkhart (1990) about Florida Water Institutions. Discuss how
water is managed in Florida. From a neoclassical theory perspective, does it appear as if it is possible to
allocate water efficiently in Florida? What is required for efficient allocation using a neoinstitutional
approach? Based on the discussion provided by the article, are you surprised that there have been “water
wars” in Florida in recent years? Answer all questions fully for full credit. (3 points)
The Evolution of Water Institutions in Florida: A Neoinstitutionalist Perspective
Author(s): Gary D. Lynne and Jeffrey Burkhardt
Source: Journal of Economic Issues, Vol. 24, No. 4 (Dec., 1990), pp. 1059-1077
Published by: Taylor & Francis, Ltd..
AEB 2451 Economics of Resource Use Lecturer Misti Sharp .docx
1. AEB 2451: Economics of Resource Use Lecturer: Misti Sharp
1
Assignment 10: Common Pool Resources
Instructions: You may work in groups but you must turn in your
own work! Indicate on the front page who you worked
with (max 3 people). An electronic copy must be submitted
online before midnight on Friday. Show all work so that
partial credit may be given. This homework is worth 15 points
total.
1) Read about the Atlantic Cod and the human “Tragedy of the
Commons” article:
http://www.wbur.org/cognoscenti/2014/12/03/overfishing-
georges-bank-david-ropeik and reflect on
why, economically, a fisherman like Tony could earn so much
money without a degree “back in the
day.” Were the Cod fishermen of years passed truly taking into
account the full opportunity cost when
they were behaving as they were? (3 points)
2) Suppose that the total benefit and total cost for a cod
fisherman in the 1970s was as given in the table
below where one boat could garner $9,000 in total fish revenue
and $5,000 in total costs. Use this
information to answer the next 3 questions.
a. Complete the following table rounding to 1 decimal if
necessary (3 points):
3. would have been released into the
Gulf of Maine? (3 points)
c. Given that the cod fishery was subject to tragedy, how many
boats were likely released into the
Gulf of Maine? (3 points)
3) Read the following article and discuss how we are responding
to the lack of Cod in the US:
https://www.usnews.com/news/best-states/maine/articles/2017-
03-24/maines-cod-fishermen-have-
worst-year-in-history In the “Global Scarcity” part of the
course, we talked about becoming self-
sufficient in food production. Would those tactics work for this
fishery resource? Why or why not? (3
points)
AEB 2451: Economics of Resource Use Lecturer: Misti Sharp
2
4) Read the attached article by Lynne and Burkhart (1990) about
Florida Water Institutions. Discuss how
water is managed in Florida. From a neoclassical theory
perspective, does it appear as if it is possible to
allocate water efficiently in Florida? What is required for
efficient allocation using a neoinstitutional
approach? Based on the discussion provided by the article, are
you surprised that there have been “water
4. wars” in Florida in recent years? Answer all questions fully for
full credit. (3 points)
The Evolution of Water Institutions in Florida: A
Neoinstitutionalist Perspective
Author(s): Gary D. Lynne and Jeffrey Burkhardt
Source: Journal of Economic Issues, Vol. 24, No. 4 (Dec.,
1990), pp. 1059-1077
Published by: Taylor & Francis, Ltd.
Stable URL: https://www.jstor.org/stable/4226346
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Journal of Economic Issues
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JeI JOURNAL OF ECONOMIC ISSUES
Vol. XXIV No. 4 December 1990
The Evolution of Water Institutions in Florida:
A Neoinstitutionalist Perspective
Gary D. Lynne
and
Jeffrey Burkhardt
In most areas of the United States, water has not been
considered
tradeable in markets like other basic commodities (food,
clothing, and
shelter). Neoclassical (NC) theorists frequently refer somewhat
dispar-
agingly to this phenomenon as the "water is different
syndrome," and
go on to suggest that the results of the non-market allocation of
water
are less than optimal [see Gardner 1983, p. 85]. Since people
involved
in water institutions are "rent-seekers" [see Gardner 1983, p.
104-5,
1 13; Anderson 1983, Chap. 4]-a description that tends to give
visions
of evil wealth stealers busily creating ways to take or to keep
6. wealth
from others-society, as a result, has to play a "negative sum
game"
[Anderson 1983, p. 19]. This detracts from the ability of good
wealth
creators to maximize wealth. The NC solution to this problem,
there-
fore, nearly always involves proposing a system of tradeable
water
rights and a market process to replace the administrative
structure that
has evolved in some states. This is the only hope for alleviating
the
"policy drought" [Anderson 1983]. The NC presumption seems
to be
that all conflict arising from scarcity (and from differing
values, beliefs,
The authors are, respectively, Professor ofAgricultural
Economics andAssociate Profes-
sor of Ethics and Public Policy in the Food and Resource
Economics Department at the
University of Florida, Gainesville. They are grateful to Roy R.
Carriker and to anonymous
JEI reviewers for helpful comments. This is Florida
Agricultural Experiment Station Jour-
nal Series No. R-00522.
1059
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7. 1060 Gary D. Lynne and Jeffrey Burkhardt
attitudes and behavior) is reduced substantially and sufficiently
when
policy facilitates the efficiency dynamics of markets.
Analysts in the neoinstitutional (NI) tradition do not appear to
find
the political and social reality surrounding water either
surprising or
problematical. For example, Lee Brown et al. [1982, p. 194]
have noted
how finding appropriate western U.S. water institutions has
always in-
volved solving a problem in political economy and not just
finding an
institution that will efficiently generate wealth. Leonard
Shabman and
William E. Cox [1986, p. 134] have argued that economic
efficiency
may not be the main concern or desired goal of Virginia water
institu-
tions. Even if economic efficiency motivated institutional
change, any
move to marketing "should be subjected to a benefit-cost
comparison"
with other processes [Shabman and Cox 1986, p. 165]. Water
markets
would likely be possible only after "protracted political debate"
if ever.
Shabman and Cox note how the Virginia legislature has
consistently
rejected moves toward water marketing [Shabman and Cox,
1986, p.
165]. Regarding rent-seeking, Michael S. McPherson has
argued that
8. self seeking with respect to resources has cultural and moral
limits, so
that the view that non-market water institutions always reflect
and
serve the interests of wealth stealers may not be defensible
[McPherson
1984, p. 71]. Indeed, water institutions may instead reflect
more fun-
damental social values that may serve to influence and
constrain the
behavior of potential rent-seekers.
This article explores the appropriateness of NI theory for
explaining
the character and evolution of water institutions. The focus of
this anal-
ysis is Florida's efforts over the past two decades to deal with
"the water
problem." Others have used NI theory to analyze water
institutions.
Philip R. Wandschneider found NI theory suitable for
explaining re-
cent institutional water change in the Pacific Northwest:
efficiency gains
were not even the issue; the issue was conflict and who was to
have
access to and control over water [Wandschneider 1986, esp. p.
97].
James A. Swaney used NI theory to improve our understanding
of why
water markets are not found extensively in the arid western
United
States, although he suggests that instituting water markets
could prove
to be a positive change [Swaney 1988]. Swaney suggests,
however, ad-
9. ministered markets as opposed to the "market system"
suggested in NC
theory [Swaney 1988, pp. 43, 44]. Charles Howe, et al.
advocate the
market system, but they also recognize potential market
shortcomings
[Howe, Schurmeier, and Shaw 1986, p. 440]. An inference
could be
drawn from their analysis that other possible goals for water
policy,
such as equity, fairness, and "socially responsible water
allocation,"
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Evolution of Florida Water Institutions 1061
may be better accounted for in NI theory. We hypothesize that
insofar
as NI theory explains the existence and evolution of water
institutions
in Florida, it may also provide some clues as to the likely
future course
of Florida water institutions, in particular, the possible
evolution of wa-
ter markets.
Contrasting Theories of Humans and Society
One of the reasons NI theory better explains the system of
water-
10. resource allocation in Florida is that NI theory explicitly
addresses the
variety of motives and values that underlies individual and
collective
actions (see Hodgson [1988, p. xvi, 13, 16]). This is in contrast
to NC
theory, which assumes that the main, if not exclusive,
determinant of
individual and collective behavior is utility-maximization. For
indi-
viduals, utility maximizing consists of (1) determining how
much time
and effort will be devoted to obtaining more income, conceived
as the
leisure/work tradeoff [all objectives (values) other than the
ones satis-
fied with money goods are subsumed under "leisure"]; and (2)
purchas-
ing as many market goods as possible with the income (profit,
wealth)
available. As each individual maximizes utility within the
constraints
of her or his own "leisure" (other objectives) choice, resource
con-
straints, and the utility-maximizing behavior of others, a
"social opti-
mum" is assumed to result. We will return to this below.
NI theory assumes that individual (and collective) behavior
results
from a considerably more complex set of factors: an
individual's be-
havior reflects priorities and trade-offs among a large number
of values
and objectives (Wendell Gordon and John Adams [1989, pp.
11. 101-114]
summarize several different views on this matter, pp. 101-114).
Inter-
action occurs within the context of others' similar (or different)
kinds
of trade-priorities and trade-offs. Given this assumption, NI
analysts
attempt to identify the range of underlying values, beliefs, and
attitudes
(and to determine the origin of each) that influence behavior
and do
not subsume all such values and beliefs under the "leisure"
concept. It
might be found, for example, that some individuals
predominately act
to acquire profits (having traded off leisure for money), while
others
do not exhibit profit-maximizing behavior at all [Tool 1986, p.
184].
In NI theory, however, the latter have traded off "other values"
against
profit, not simply leisure. For NI theory, since all actions
reflect both
the values of the individual and her or his cultural context (that
is, oth-
ers' values), explaining behavior is an empirical matter: what
values,
beliefs, and attitudes, are motivating people? In NC theory, to
the con-
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12. 1062 Gary D. Lynne and Jeffrey Burkhardt
trary, the maximization view is an untested assumption, or a
method-
ological convenience [Caldwell 1982].
Operationally, NI theory is in this respect consistent with and
in
some respects dependent upon the work of social psychologists
such as
Milton Rokeach [1973] (see also [Hodgson 1988, chaps. 3-6],
in deter-
mining what values people actually hold. Contrary to the NC
maximi-
zation model, Rokeach suggests that there is a multiplicity of
values
that people pursue or use as standards for determining the
means and
ends for behavior [Rokeach 1973, p. 13]; compare Tool [1986,
p. 8].
Rokeach distinguishes between end-state or terminal values,
and func-
tional' values pursued to help in achieving end-state values.
Based
upon extensive empirical work, Rokeach has identified the
following
prevalent end-state or terminal values: a comfortable life, an
exciting
life, a sense of accomplishment, a world of peace, equality,
family secu-
rity, freedom, happiness, inner harmony, mature love, national
secu-
rity, pleasure, salvation, self-respect, social recognition, true
friendship,
and wisdom [Rokeach 1973, p. 28]. Functional values include:
13. ambi-
tion, broadmindedness, capability, cheerfulness, cleanliness,
courage,
helpfulness, honesty, imaginativeness, independence, as well as
being
intellectual, logical, loving, obedient, polite, responsible, and
self-
controlled. Note that most values cannot generally be
purchased with
more money.
Given different accounts of individual psychology, the
sociology of
NC and NI theory also appears quite different. For NC theory,
the as-
sumption that individuals always maximize income (subject to
internal
and external constraints) leads directly to the position that all
"normal"
interactions among people are market interactions. In theory,
this in-
cludes political interactions [Downs 1957; Buchanan and
Tullock
1967]. Although NC theorists tend to ignore basic institutions-
in-
cluding the market as institution (see Hodgson [1988, Chap.
8])-there
is probably at least implicit agreement among them with
Buchanan's
account2 of how neoclassical assumptions also explain the
origin and
subsequent working of basic institutions in a society.
James M. Buchanan and Gordon Tullock argue that institutions
arise
14. because of (a) the need for public safety and security, including
enforce-
able contracts; and (b) information and other transaction costs
[Bu-
chanan and Turlock 1967, pp. 47-62; Buchanan 1986, p. 11 1].
Without
a suitable institution (a legal or moral device serving to
stabilize mar-
keting and other human interaction), no productive human
interaction
would occur. Markets, for example, would not function if either
there
are no enforceable contracts or if the participants are not (at
least mini-
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Evolution of Florida Water Institutions 1063
mally) capable of obtaining the requisite information to
participate
freely in the market. According to Buchanan, institutions are
therefore
to be understood as having been the result of an agreement that
indi-
viduals entered into at some point (or hypothetically) that
established
the fundamental "constitutional" principles on which
subsequent inter-
actions are to be based. With a "just" background institution in
place,
15. individuals can simply pursue their self-interest. So long as the
rules
operate, we can ignore the reasons and values that went into the
intitial
agreement.
What Buchanan sees as motivating people to "join" the
contract,
then, is maximization of self-interest [Buchanan 1987, p. 245;
also see
Buchanan and Tullock 1967, pp. 11-15]. The resultant
"constitution"
-although this equally applies to any institution-reflects the
wealth
maximizing goal, although the institutionalizing process
establishes
formal rules for guaranteeing that transactions will be optimal
in this
regard. Whatever other values people have besides
maximization of in-
come-if they have other values-will either be reflected in
market ac-
tivities (that is, prices), or will be taken care of by various
nonmarket
activities (including institutions). Generally, however,
nonmarket ac-
tivities and institutions are inefficient, and hence will not be
"con-
tracted into."
In contrast, NI theory attempts to explain both market and
nonmar-
ket institutions without the a priori assumption that the reason
people
enter into society (or participate in any set of institutions) is to
maximize self-interest. Moreover, NI theory does not assume
16. that non-
market institutions are generally non-optimal and that markets
are gen-
erally if not always optimal. Indeed, one of the tenets of NI
theory is
that, for a given set of values that individuals hold, sometimes
non-
market institutions are more optimal (value-maximizing or,
possibly,
value-satisficing) than a market institution would be in that
same situ-
ation. In this respect, for NI theory a major focus is on the
"ongoing
process" in the evolution of values and beliefs, and the
institutionaliz-
ing of particular constellations of values, rather than on
behavioral dy-
namics of people within a particular set of market-oriented
institutions
[Gordon and Adams 1989, p. 98]. As technology changes and
people
acquire knowledge about the consequences of past or existing
institu-
tions, technologies, and individual and collective actions,
beliefs and
values change. This feedback can lead to institutional re-design
[Gor-
don and Adams 1989, pp. 17-67].
Some of the values Rokeach and others have identified as
important
in American society appear to be best achieved through or as a
result
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1064 Gary D. Lynne and Jeffrey Burkhardt
of maximizing behavior in markets: a comfortable life, family
security,
rational behavior, and others. Other values, however, are
achieved in
or institutionalized in different ways. As Rokeach indicates,
when any
values come to be institutionalized, particular institutions
specialize in
certain subsets of the larger set of "held values" [Rokeach
1979, pp.
50-53].
Another aspect of NI theory is that it accounts for the existence
and
function of a "community of interests," or "moral community,"
to use
Buchanan's [1986] term. Moral community is the idea that in
some sit-
uations or with respect to some issue or problem, individuals
feel them-
selves to be members of an ongoing social enterprise, rather
than
"independent, isolated" maximizing individuals [Buchanan
1986, p.
109]. Mark Sagoff has also noted that rather than perceiving all
situ-
ations as opportunities for maximizing self-interest, individuals
share
a common concern, be it national pride, care for the
environment, pub-
18. lic health, or any other "social value" [Sagoff 1989] A. Alan
Schmid
also shows how mutual dependence and interdependence among
indi-
viduals underlies this notion of community [Schmid 1987, p.
27]. In-
deed, recognition of interdependence seems the fundamental
feature of
moral community [Dallmayr 1978]. Moral communities can be
both
informally "institutionalized" or formally institutionalized
through a
political process. An important aspect of the latter case is this:
Once a
basic community value is institutionalized, individual and
collective
behavior comes to reflect it (see Gordon and Adams [1989, p.
7]). Moral
community, institutionalized in law or policy, is in this respect
self-
reinforcing.
A moral community can come into existence in any number of
con-
texts and for any number of reasons. Buchanan seems to think
that reli-
gion and a homogeneous cultural tradition underlay the most
pervasive
moral communities [Buchanan 1986, p. 109], although he
admits that
other manifestations or sources of community exist in trade
unions,
firms or social classes. What he does not explain is how a
moral com-
munity-and institutions that reflect it-can come into existence
19. when
hitherto there was none, and when in fact there had been only
"moral
order"-his term for the social situation wherein self-interested
indi-
viduals interact within the constraints of institutionalized
civility, but
without any common concern or value. An important question
for NI
theory is, however, when and how do widely shared purposes
arise in
the context of institutions and behaviors that aim at the
maximization
of individual wealth? How do institutions thereby change to
reflect and
embody these "new values?"
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Evolution of Florida Water Institutions 1065
A number of reasons may explain why a group of individuals
with
different value priorities, different knowledge-levels, different
work and
lifestyles, might coalesce around a particular value or set of
values so
as to constitute a moral community with respect to a specific
issue or
problem. Certainly widespread perception of a "social crisis"
could be
one factor [Burkhardt 1988]. Increased knowledge about a
20. situation
where there already had been some degree of community would
be an-
other. Deliberate "contracting" for mutual defense or advantage
would
be a third. Strong charismatic leadership that brings about a
coales-
cence of values might be another [Buchholz, 1982]. The point
is that
moral communities can arise, and that institutions that reflect
them
can come to exist-or pass out of existence. Or, perhaps more
relevant
to the discussion below, the institutions can be created to
reflect an
emergent moral community, only to reinforce the notion of
community
and interdependence in the ongoing process of administering
the value-
mandate of the initial institutionalization.
Through time, the dynamics of values and institutions are such
that
values that were once institutionalized can nevertheless change,
forcing
a de- or re-institutionalizing process. For example, some
constellations
of values in the southwestern United States led to the creation
of pri-
vate property rights in water that facilitated market processes
(see Sa-
liba [1987] for an overview of marketing in that area). Some
led toward
natural resource institutions that simulate market-like
processes with
taxes and subsidies (a vast literature exists here, see Baumol
21. and Oates
[1975]). We now see how these institutions change as a result
of the
ongoing valuing and institutionalizing process, to reflect the
"cultural
context" [Albelda, Gunn, and Waller 1987, p. 11]. In some
cases, com-
modities have been taken out of the market to reflect changed
values
(for instance, pesticides like DDT); in other cases, commodities
have
been returned to the market (saccharin, for example). In both
kinds of
circumstances (and others), NI addresses precisely the
"institutionaliz-
ing" game going on behind the market [Dugger 1988, p. 984],
by looking
at both the deliberate self-interested "contracting" activity of
market
participants and the historical evolution of the beliefs and
values and
moral communities that subsequently shape the institutions. It
is to the
evolution of Florida's water institution that we now turn.
Florida's Evolution of the Rules of the Game
Florida's early history of generally uncontrolled growth and un-
guided natural resource use and development eventually led to
consid-
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22. 1066 Gary D. Lynne and Jeffrey Burkhardt
erable environmental stress (for overviews, see Blake [1980,
esp. pp.
195-196] and Clark [1974, esp. pp. 43-46]). By 1970,
population was
doubling every twenty-five years statewide and doubling every
fourteen
years in seven south Florida counties [Blake 1980, p. 224].
Aquifers had
been damaged by salt water intrusion from overpumping in
coastal
areas, development had occurred in important aquifer recharge
areas,
and water quality had notably worsened. Unprecedented
droughts oc-
curred in 1961, 1962, 1967, and again in 1970-1971 [Blake
1980, p.
224]. The droughts increased many citizens' awareness of the
possibil-
ity of long-term water shortages and further reductions in water
quality,
given the anticipated continued influx of people into the state-
both
permanent residents and tourists. Many people were in the
process of
questioning the values and belief systems that had encouraged
rapid
development. Even development interests were concerned,
however,
that water scarcity might affect their ability to attract new
residents and
businesses to the state. Everyone seems to have begun to
question the
processes by which resources, especially water, were allocated.
23. By 1974,
the general attitude in Florida toward resource use had changed
[Blake
1980, p. 195]. Conservation and preservation became major
political
issues. By the mid- 1 970s the institutionalizing of a new set of
values
was well underway.
The severe South Florida drought of 1970-1971 precipitated a
series
of political efforts to address these concerns and apparent new
values
[Clark 1974, p. 125]. In 1971, a special conference was
organized by the
governor to bring together both professional and lay people
[Clark
1974, pp. 125-26] to address problems associated with
uncontrolled
growth and resource use. The conference served to highlight
the need
for reliable scientific and technical knowledge about the
problems, but
most importantly, it suggested that Floridans desired a long-
term po-
litical solution to those problems. The conference report laid
the
groundwork for dramatic institutional change. Subsequently, in
1972,
four major pieces of land and water legislation were enacted
[Clark
1974, pp. 126-36]. The law now more strictly regulated natural
re-
sources, provided for the purchase of environmentally sensitive
lands,
and mandated state-wide comprehensive planning. The Florida
24. Water
Resources Act ("the Act") focused on the regulation of well-
drilling,
surface water management, and consumptive use of water (see
Tilley,
Lynne, and Boggess [1985] for a discussion of the consumptive
use por-
tion].3 Commenting on this legislative activity the Governor
noted that
compared to other states Florida "would walk away with the
honors"
[Blake 1980, p. 223]. In fact, the legislation only started the
process of
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Evolution of Florida Water Institutions 1067
redirecting Florida's water institutions to reflect citizens'
broader envi-
ronmental concerns. The process has continued through
administrative
law in the water management districts put in place by the Act
as well
as in further growth management legislation during the 1 980s.
The Florida Water Resources Act drew heavily on the Maloney
Model Water Code [Maloney, Ausness, and Morris 1972]. The
Code,
intended for use in all of the eastern United States, has three
purposes:
25. to take into account the hydrologic interrelationship of all
types of water
resources in the state; to provide greater certainty than is
possible under
a court-administered reasonable use approach; yet to retain
sufficient flex-
ibility to make possible realistic long-range plans for the
conservation and
wise use of water resources and the elimination of waste
[Maloney, Aus-
ness, and Morris 1972, p. vii].
The Act incorporates all three purposes. A major assumption of
the Act
is that water administrative agencies need reliable knowledge
about hy-
drologic structures and patterns and other ecological
relationships. To
that end, professional staffs are charged with insuring that the
lat-
est information is used in advising the nine-member governing
board
in each district. The South Florida Water Management District,
for ex-
ample, employs more than 200 professionals (and over 1000
support
employees), many with advanced degrees in the revelant
academic dis-
ciplines. The five districts regularly fund academic research at
the
state's universities in addition to using consulting firms. Board
mem-
bers appointed by the governor are also to be "experts on
water" [Ma-
loney, Ausness, and Morris 1972, p. 79]. Although the
possibility of
26. electing the boards is now being considered, the original reason
for ap-
pointing the board members was to insure that such individuals
had
the necessary understanding of the hydrologic system.
The point of assembling all this expertise is planning, and
indeed,
planning represents a key feature of the Act. The State
Department of
Environmental Regulation has been charged with coordinating
plan-
ning in the five water districts that encompass the state.4
However, the
water districts themselves, not the state, do most of the
planning. This
structure is meant to insure that regional differences in both
hydrology
and values are adequately reflected in the process.
Once in place, the Act facilitated the evolution of a process for
deter-
mining both the value of water and its appropriate uses.
Notably, the
process facilitated by the Act fits John Commons's account of
evolving
reasonable value: Commons showed how value evolves through
politi-
cal negotiation in addition to market process [Gruchy 1972, p.
42]. As
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27. 1068 Gary D. Lynne and Jeffrey Burkhardt
Commons noted, "Reasonable value changes with new
combinations
of circumstances and collective control, and is in process of
evolution
through changes in efficiency, scarcity, custom, politics, and
dominant
interests" [Commons 1934, p. 207]. In concordance with
Florida's Ad-
ministrative Procedure Act,5 the Act facilitates handling new
circum-
stances and changing values through negotiation and the use of
forms
of nonmarket interaction among those with varying interests,
such as
public meetings, hearings and workshops. Over and above the
question
of valuation, however, the Act also forces the districts to
decide what
the reasonable uses of water are for their areas. The districts
are not
without guidance on this question, however. Certain standards
of rea-
sonableness were incorporated into the institution reflecting a
range of
values associated with water. For example, individuals do not
need per-
mits to take water for domestic purposes [Maloney, Ausness,
and Mor-
ris 1972, p. 177], reflecting the primacy of individual rights to
this
needed resource.6 Private land may be condemned, however,
28. for con-
servation purposes [Maloney, Ausness, and Morris 1972, p.
148].
Moreover, transport across hydrologic boundaries (interdistrict
trans-
fer) is not permitted unless demonstrated to be in the public
interest.7
Users may not cause an "unmitigated adverse impact" on other
users,
defined in one district as a decrease of 10 percent or more in
the with-
drawal capability [South Florida Water Management District
1985, p.
B-6].
The standard of reasonableness was supplemented with the
concept
of beneficial use, reflecting the Maloney reasonable beneficial
use stan-
dard [Maloney, Capehart, and Hoofman 1979]. As defined by
Maloney
et al., the reasonable beneficial standard refers to: "The use of
water in
such quantity as is necessary for economic and efficient
utilization for
a purpose and in a manner which is both reasonable and
consistent
with the public interest."8 The beneficial use component refers
primar-
ily to the private interest (benefits and costs) in water,
reasonableness
involves the relationship of the private to the public interest.
The stan-
dard suggests economic efficiency can be pursued only in the
larger con-
29. text of also satisfying the public interest.
A main component of that public interest that underlies the
admin-
istrative structure is the value Floridians placed on what can be
referred
to as "the continuity of human life" [Tool, 1986, esp. p. 50, 57-
58]. The
Act expresses overriding concerns for wise use of water to
insure the
continuity of human life with the focus on public health,
safety, and
general welfare [Maloney, Ausness, and Morris 1972, p. 277,
279].9
Both the Code and the Act also emphasize the continuity of life
in fish,
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Evolution of Florida Water Institutions 1069
wildlife, and other natural systems [Maloney, Ausness, and
Morris
1972, p. 277].10 The long-term integrity of all water and
related resource
systems should be protected in all phases of the hydrologic
cycle [Ma-
loney, Ausness, and Morris 1972, p. 82]. Despite the
recognition of eco-
nomic efficiency in the goals of the Code and Act, the logical
inference
30. is that other values and perhaps even a "moral community"
with re-
spect to water operated to produce an institutional structure
that re-
flects those more fundamental values.
The important point is that Floridans established an
administrative,
rather than a market, structure for the determination of water
alloca-
tion and use. It is with respect to this outcome that NC theory
provides
little guidance. Indeed, NC theory may even hold that Floridans
were
(and continue to be) mistaken if not unreasonable in their
institution-
alizing process. NC theory maintains that whatever problems
exist in
allocation/use/valuation, laws should be enacted to remove
impedi-
ments to the natural evolution of water (and other
environmental re-
source) markets. Alternatively, taxes and subsidies should be
enacted
to emulate "natural" markets. Under these market or quasi-
market ar-
rangements the optimal long-run use would have been
achieved. Pop-
ulation growth, droughts, and the like would have only affected
the
relative prices of alternative uses.
For NI theory, to the contrary, the administrative structure put
in
place in Florida has an inherent reasonableness, given the
desires and
31. values of the population. Interestingly, many of the Rokeach
values can
be seen to have been specifically institutionalized in the Act
and in ad-
ministrative rules and regulations developed by each water
district
since 1972 [Rokeach 1973, p. 28]. Uncertainty has been
reduced (and
security enhanced): permits can be issued for up to twentyi
years and
the original permit holder will be given first consideration for
renewal. I '
Permit holders are expected to be obedient: water districts have
police
power to enforce rules.'2 Applicants should be honest: permits
can be
lost if false information has been used to get the permit.'3
Applicants
should be ambitious and hard working: permits can be lost for
nonuse
of water.14 Individual permit holders are encouraged to be
independent:
only minimal efforts are put into directing actual on-site water
using
practices.
More to the point is whether or not a moral community in the
sense
discussed above exists with respect to the allocation and use of
this re-
source. The idea of such a community of shared purposes is
arguably
apparent in the code that underlies the Act. The swiftness with
which
the state moved from initial identification of those problems to
an in-
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1070 Gary D. Lynne and Jeffrey Burkhardt
stitutional structure that addresses them suggests at least some
measure
of "shared purpose." The continuation of the mandate of the
Act in the
administrative activities of the water districts suggests some
degree of
continued commitment, as does the surprisingly small number
of legal
challenges to decisions of the water districts' boards. The
problem is
that even with this institutional structure in place and
continuing its
function, there remains conflict and competition over water in
Florida.
This may suggest that either (1) no moral community ever
existed, the
Act instead reflecting a somewhat accidental confluence of
self-
interested and environmental considerations; or (2) a
community did
exist, but no longer does: the institutional structure no longer
reflects
the values of Floridians with respect to water; or (3) the
community
still exists and the institutional structure continues to reflect it,
but that
fine tuning and "reinstitutionalizing" will be a continual
33. activity. We
favor the last explanation, but also realize further study of the
matter
is needed.
Floridians Have Yet to Address Competition
While the code and the Act give a workable framework within
which
to reduce conflict, problems remain. An especially difficult one
is re-
solving competition, especially during droughts.
Consumptive use permits currently specify an upper limit on
with-
drawals for some drought frequency, such as: "draw up to one
acre inch
per day on average given a rainfall year described by a 2-in- 10
drought
frequency."'5 As long as 2-in-O0, or wetter, rainfall years
occur, the user
can draw the one acre inch. If rainfall has been lower, however,
the
permit now only gives rights to participate in a process for
allocating
water (a competition) defined by provisions of a water shortage
plan
put in place by each water management district.'6
The "competition," however, has some very stringent and
limiting
rules, especially when compared to the rules underlying market
com-
petition. For example, after the South Florida Water
Management Dis-
trict declares a moderate, severe, extreme, or critical water
34. shortage,
suggesting the need for up to a 15, 30, 45, or 60 percent
reduction in
overall demand, a listing of priority areas and particular
allocations to
each class of user comes into force [South Florida Water
Management
District, 1982, p. 5 and Figure 21-1]. At the 45 percent level,
for exam-
ple, overhead agricultural sprinklers can only be operated from
7 p.m.
to 7 a.m., while low-volume agricultural irrigation systems can
be op-
erated without limit; domestic use is limited to 40 gallons per
person
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Evolution of Florida Water Institutions 1071
per day; and swimming pools in tourist hotels cannot be filled.
Alloca-
tion is by specific limits for each use in the district, with all
restrictions
centrally determined and made a part of the water shortage
rule.
The problem faced by water users in such a system can be
highlighted
with an excerpt from one such water shortage plan as
pertaining to ag-
riculture during a 45 percent shortfall: "The share of the total
35. agricul-
tural irrigation allocation available to each user will be based
on any
prioritization among crops the District establishes based on
economic
loss or equity considerations and the acreage and quantity of
withdraw-
als for which the user has been permitted" [South Florida Water
Man-
agement District 1982, p. 20]. Generally each class of water
user can
be subjected to a priortization and allocation process defined in
detail
by the district during each drought event. While such a process
must
comply with the Act (with the possibility of various kinds of
negoti-
ation and interaction, and in this sense, a process generating
reasonable
value as argued earlier in the case of evolving rules), we
question the
effectiveness of such a process for allocating water among
private sector
uses, both during droughts and over the long run.
The problem really is an information problem. Reliable
hydrologic
and value information about every gallon of water must be
available
to the forty-five people (five water districts, nine governing
board mem-
bers in each) charged with all the permit and water allocation
decisions
for the entire state. As noted, the boards do employ large, well-
trained
professional staffs to help the information problem. Much of
36. the $150
million spent each year for water management by the five
districts is
to generate information [Lynne 1988, p. 95]. Even so, it
appears impos-
sible for the boards and staffs to know how much water each
use should
have at all times [Lynne 1988, pp. 99-100]. Reliable knowledge
gener-
ated through research can provide a portion of the needed
information,
and public hearing processes can to some extent facilitate
determining
how much to allocate to each user. Practically speaking,
however, use-
ful information will always be in short supply if the only way
for indi-
viduals to interact is through the present political process.
Public
meetings and hearings, workshops, and other means of getting
informa-
tion to forty-five board members appear inadequate for their
task of
allocating billions of gallons of water to millions of users.
In the eyes of some observers, water or water rental markets
may
represent a better way for allocating this resource, especially
within
the private sector. As NC theory holds, individuals selling or
rent-
ing water would not do so unless a benefit was expected, and
the buy-
ers and renters would not want water unless a gain was
expected.
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1072 Gary D. Lynne and Jeffrey Burkhardt
Because both individuals gain, economic efficiency occurs.
Both the
competition-during-drought and information problems would be
obvi-
ated. During droughts, prices would simply rise: holders of
excess water
would eventually sell. No state- or district-wide information
about
value regarding private uses would be necessary, and
information
would be needed only about hydrology and the values
pertaining to the
public interest, both of which would still be the charge of the
districts.
As severe as these (and other) problems might be for the
administra-
tion of Florida's water policy, the fact is that Floridians would
probably
not tolerate a free market to resolve all the water allocation
decisions.
James Swaney [1988, p. 36] has noted the "shortsightedness" of
water
markets; markets may miss major value shifts, which seemingly
is a
major reason for the Act. The Florida community may favor
relatively
free water marketing or renting during short term droughts
38. (when val-
ues are stable) but only a very limited marketing for long-term
alloca-
tion, when values are shifting. Information about market prices
for
short-term water might prove especially helpful to the boards
during
droughts. Some limited marketing for long-term allocation may
also
provide insights into which uses might be encouraged and
which
should be discontinued, but only if major value changes can be
insti-
tutionalized in other processes.
Some marketing may also be a way to control those rent-
seekers who
remain. Individuals who would otherwise obtain resources by
putting
obstacles in the way of markets would now have to buy water
from
other people. The net result would be a sharing of the rent.
Basic admin-
istrative structures, however, would still be needed to insure
that other
values were considered: administrative and board review would
still
be needed to monitor transactions and to influence the direction
of wa-
ter markets. Indeed, not only is water "different" in the eyes of
Florid-
ians, it is too important to be left to the market. As Swaney has
noted,
society will not normally let such an important resource be
allocated
by the "Juggernaut market" [Swaney 1988, fn. 35, p. 43]. Yet,
39. "properly
administered water trading (could represent) an instrumental
institu-
tional adjustment" [Swaney 1988, p. 44]. The current
institutional
structure probably needs only some fine tuning, possibly
involving
some marketing, to further insure that it both reflects the
community's
(moral) evaluation and the desires for its economic and
efficient use.
The evolution of water markets in Florida would depend on a
num-
ber of considerations in addition to their information-
transmission or
efficiency-preserving functions: (1) Water markets will arise
only if the
other values Floridians hold (most importantly, the "continuity
of
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Evolution of Florida Water Institutions 1073
life") are secured. (2) Unconstrained "free" markets in the
sense of the
NC (seemingly immaculate) conception will arise only if
people gener-
ally believe either that there are no rent-seekers left in Florida
or that
40. the nature of the resource is such that rent-seeking is
minimized. How-
ever, (3) water markets may never evolve if the community's
values
associated with the water resource can be satisfied within some
form
of political/administrative process. The implication is that (4)
water
markets will arise, once the administrative structure has done
its job of
reinforcing in attitudes and behavior the idea that water
allocation and
use is a matter of community values. The question is whether
the insti-
tutional structure will reinforce that moral community, or fall
prey to
the "wealth maximization" model in its basic allocation
decisions.
Conclusions and Implications
Florida's water institutions originally evolved in a setting of
fear and
concern arising from water scarcity caused by rampant
economic devel-
opment. Fear and concern appears to have led to a coalescence
of atti-
tudes in the late 1960s among economic development interests
and
environmental preservation communities of the state, given the
general
support for a dramatically different water institution starting in
1972.
The 1972 Florida Water Resources Act (and the rules,
regulations, cus-
toms, and habits that have evolved since 1972) seemingly
41. reflect that
coalescence, which we have referred to as a moral community.
The Act
institutionalized the community's values and put in place a
process for
drawing out the practical implications of those values, as
reliable
knowledge about both the hydrologic system and the impacts of
growth, development, and conservation has become available.
The ad-
ministrative requirements imposed by the later institutions have
changed behavior, but those institutions already reflected a
changed at-
titude toward water resources. The institutions usually have
served to
reduce conflict. However, as conflict erupts again in the face of
institu-
tional rigidities (which may be a constant, under Veblen's
notion that
"whatever is, is wrong"), institutional adjustment will generally
be
needed. Both during and after adjustment, markets may serve a
useful
role, mainly because of the information transmission capability
of mar-
kets. As we suggested, however, the nature of those markets
may be
decidedly different from the market models proposed by
neoclassical
theory, dependent as they are on the existence of a moral
community.
Colorado, New Mexico, and other western U.S. water markets
appar-
ently function within the context of a moral community: in
nearly all
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1074 Gary D. Lynne and Jeffrey Burkhardt
cases, state and federal agencies administer both the market
and the
prices (see Saliba [1987]).
Markets may eventually emerge in Florida. Although the
Florida
Water Resources Act developed rules to reflect an
administrative re-
sponse to moral community, market-like institutions are not
necessar-
ily inconsistent with its intent. Frank J. Trelease has argued
that
If an easterner wants the best of water use laws, he could make
no better
start than first considering the provisions of the Model Code
for planning,
regulating and protecting water resources. But he should think
very hard
before he adopts the Code's system for distributing and
redistributing the
water allocated to the private sector [Trelease 1974, p. 213].
Trelease favors water rental markets, as well as sales of water
and sales
of water rights, for allocating water that has been set aside for
the pri-
43. vate sector [Trelease 1974, esp. pp. 222-223]. His point may
have some
validity: such administered markets may prove to be a good
way to
meet peoples' differing, secondary needs and values in the
private sec-
tor once basic "continuity of life" values are imbedded in the
institu-
tion reflecting the public interest.
Even so, some evidence exists for thinking that in many states,
including Florida, an extensive marketing structure will never
emerge.
Susan C. Nunn suggests that High Plains (particularly west
Texas)
farmers would not be favorably disposed toward water markets,
or any
other sort of institutional change that might affect distribution,
no mat-
ter how economically efficient [Nunn 1985, pp. 890-91]. As
noted ear-
lier, Shabman and Cox also seem to believe markets may not be
politically tractable in Virginia [Shabman and Cox 1986, p.
165].
One thing is clear: the evolution or lack of evolution of
markets (or
any other set of institutional arrangements) is better explained
through
NI analysis than through NC theory. This is particularly true
with re-
spect to water institutions. This is because NI theory provides a
more
empirical and realistic explanation of the emergence of
institutions on
the basis of individual and community values, and the
44. institutional
conditions under which people acquire, maintain, or change
their val-
ues and subsequent actions. In the case of Florida's water
institutions,
NI analysis provides the basis for an explanation of the
conditions un-
der which the non-market institutions evolved and will be
maintained,
insofar as they achieve values and objectives not easily reached
with
markets.
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Evolution of Florida Water Institutions 1075
Notes
1. Rokeach calls them instrumental values, but uses the
terminology some-
what differently than in NI theory. That is, Rokeach's use
suggests "func-
tion" or "means" or "mode of operation," such as "being
honest" or "being
capable" or "being intellectucal." While NI instrumental value
theory
might suggest that people pursue Rokeach instrumental values,
clearly NI
instrumental valuation has more referential content than simply
describing
a list of objectives.
45. 2. This is not to suggest that Buchanan and other Public Choice
(PC) theorists
(such as Tullock) are neoclassical economists. As correctly
pointed out by
an anonymous referee, NC theorists "consider institutional
adjustment to
be outside the domain of economics. PC theorists investigate
choice of in-
stitutions using NC assumptions about maximizing
individuals." We do
believe, however, that differences often are blurred because of
the insis-
tence of the PC theorists on individuals only seeking self-
interest with little
regard for or influence from the community, as in the NC
theory.
3. Florida Statutes, Chapter 373.
4. Ibid., Chapter 373.036.
5. Ibid., Chapter 120.52.
6. Ibid., Chapter 373.219.
7. Ibid., Chapter 373.2295(10).
8. Ibid., Chapter 373.019(4).
9. Ibid., Chapter 373.016(h).
10. Ibid., Chapter 373.016(e).
11. Ibid., Chapters 373.236(1) and 373.233(2).
12. Ibid., Chapters 373,603.
13. Ibid., Chapter 373.243(1).
14. Ibid., Chapter 373.243(4).
15. A maximum day withdrawal is also generally specified, but
is not necessary
to the example being discussed.
16. Florida Administrative Code, Chap. 40.
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Contents105910601061106210631064106510661067106810691
0701071107210731074107510761077Issue Table of
ContentsJournal of Economic Issues, Vol. 24, No. 4 (Dec.,
1990), pp. 963-1241Front MatterNew Light on John Dewey,
Clarence Ayres, and the Development of Evolutionary
Economics [pp. 963-979]"New Thinking" in the Soviet
Economy: Lessons for Western Political Economists [pp. 981-
994]The Causes of Black Poverty: Evidence and Interpretation
[pp. 995-1016]The Rhetoric of Inquiry or the Sophistry of the
Status Quo? Exploring the Common Ground between Critical
Rhetoric and Institutional Economics [pp. 1017-1026]Why
Johnny (Ph.D., Economics) Can't Read: A Rhetorical Analysis
of Thorstein Veblen and a Response to Donald McCloskey's
"Rhetoric of Economics" [pp. 1027-1044]Retirement as an
Institution [pp. 1045-1057]The Evolution of Water Institutions
in Florida: A Neoinstitutionalist Perspective [pp. 1059-
1077]Client Consumption Patterns within an Income-Based
Energy Assistance Program [pp. 1079-1093]Institutional
Adjustment, Instrumental Efficiency, and Reasonable Value [pp.
53. 1095-1107]Notes and CommunicationsInstrumental Value an
Eternal Verity? A Reply to Wendell Gordon [pp. 1109-
1122]Culture versus Social Value? A Response to Anne
Mayhew [pp. 1122-1133]Economic Reforms in Socialist
Economics: A Comment on Petr [pp. 1133-1137]Review:
Keynesianism, Monetarism, and the Crisis of the State: A
Review Article [pp. 1139-1146]Book ReviewsReview: Two
Reviews of William M. Dugger: "Corporate Hegemony" [pp.
1147-1155]Review: untitled [pp. 1157-1163]Review: untitled
[pp. 1163-1166]Review: untitled [pp. 1166-1168]Review:
untitled [pp. 1168-1172]Review: untitled [pp. 1172-
1175]Review: untitled [pp. 1175-1179]Review: untitled [pp.
1179-1181]Review: untitled [pp. 1181-1186]Review: untitled
[pp. 1186-1189]Review: untitled [pp. 1190-1193]Review:
untitled [pp. 1193-1196]Review: untitled [pp. 1196-
1197]Review: untitled [pp. 1198-1199]Author Index: Volumes I
- XXIV (1967-1990) [pp. 1201-1241]Back Matter