Why is a price system the best way to allocate natural resources? The lesson sets the stage by describing the competing demands for Colorado River water. The Colorado River provides water for one out of every eight Americans for residential, industrial, mining, agricultural, and recreational needs. The river serves seven western U.S. states and Mexico, and water appropriation was established by an agreement forged in 1922. Senior water rights were given to the earliest (white) settlers and tended to be in the agriculture, ranching, and mining interests. Senior rights were also awarded to California after a series of Supreme Court cases throughout the twentieth century. Having senior water rights mandates that the same amount of water be allotted each year regardless of river totals. All others have junior rights and have to share the remainder. Ultimately, the federal government controls the water and has the final say in appropriation. The challenge is to align the individual needs of consumers with the health of the river while an ever-changing set of conditions influences both supply and demand. We have developed a teaching project for students of Political Science Degree (1st year). Each student must decide how much water to take and calculate the water usage’s total value to society. They are given a number of scenarios that change their incentives to take water from the river. The students discover that when something is appropriately priced, its total value is maximized under a price system.

Authors:
Cristina Vilaplana-Prieto, University of Murcia, Spain

About the Presenter(s)
Cristina Vilaplana-Prieto has a PhD in Economics from the University Carlos III of Madrid. She is specialized in Health Economics, Economics of Aging and Microeconometrics. She is currently Associate Professor of the University of Murcia (Spain).

See this presentation on the full schedule – Monday Schedule

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