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4

Water Institutions

The creation of innovative water institutions and other contributions from the social sciences are critical for effective water resource management. Yet, during the late twentieth century, the amount of research on water institutions dwindled in comparison with other aspects of water resources research. Many of the institutions that we currently rely upon for the management of our water resources were devised in the nineteenth century to respond to nineteenth-century problems (Gillilan and Brown, 1997). For example, many water laws, particularly in the West, were created to address circumstances that have now largely passed. These laws as well as other institutions are not well suited to respond to the problems of the twenty-first century. The institutional issues on the research agenda are particularly urgent. This urgency and the historical underinvestment in institutional research suggest that efforts should be made to invest relatively more in institutional research than has been the case in the past.

LEGAL AND POLITICAL ISSUES

The statutes that govern U.S. water resources evolved in response to changing notions of societal needs. In the western United States, water allocation systems favored the development of water supplies, memorialized in the phrase “use it or lose it.” Many decades later, water quality was recognized as a matter of national priority, and starting with the passage of the Clean Water Act in 1972, a new set of federal and state laws was superimposed on common law water doctrines. The Endangered Species Act reflected national concern with the protection of biodiversity and, indirectly, ecosystems. Most western rivers now have federal and state protected endangered species as part of their ecosystems, as do some eastern rivers. The statutes often have conflicting objectives, with many state water laws being poorly adapted to the present era of water scarcity. In general, the



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Page 33 4 Water Institutions The creation of innovative water institutions and other contributions from the social sciences are critical for effective water resource management. Yet, during the late twentieth century, the amount of research on water institutions dwindled in comparison with other aspects of water resources research. Many of the institutions that we currently rely upon for the management of our water resources were devised in the nineteenth century to respond to nineteenth-century problems (Gillilan and Brown, 1997). For example, many water laws, particularly in the West, were created to address circumstances that have now largely passed. These laws as well as other institutions are not well suited to respond to the problems of the twenty-first century. The institutional issues on the research agenda are particularly urgent. This urgency and the historical underinvestment in institutional research suggest that efforts should be made to invest relatively more in institutional research than has been the case in the past. LEGAL AND POLITICAL ISSUES The statutes that govern U.S. water resources evolved in response to changing notions of societal needs. In the western United States, water allocation systems favored the development of water supplies, memorialized in the phrase “use it or lose it.” Many decades later, water quality was recognized as a matter of national priority, and starting with the passage of the Clean Water Act in 1972, a new set of federal and state laws was superimposed on common law water doctrines. The Endangered Species Act reflected national concern with the protection of biodiversity and, indirectly, ecosystems. Most western rivers now have federal and state protected endangered species as part of their ecosystems, as do some eastern rivers. The statutes often have conflicting objectives, with many state water laws being poorly adapted to the present era of water scarcity. In general, the

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Page 34 legal system has failed to develop statutes that integrate the multiple goals that must govern water management in the twenty-first century. Studies of comparative law and institutions for managing water in a flexible and adaptive fashion could help in developing new state water codes where needed. Although groundwater is a significant part of the water supply and is the primary source of water for a number of municipalities, state groundwater law sometimes fails to promote the efficient use of groundwater and protect groundwater quality. In addition, groundwater law often is not well integrated with the statutes governing the use of surface waters. This leads to fractionated and inefficient water management. The development of improved legal principles and model statutes governing groundwater use to facilitate the application of conjunctive use is needed. Existing laws also are not well suited to dealing with transboundary waters. In the opinion of the Water Science and Technology Board (WSTB), some individual arrangements such as the International Joint Commission, an institution through which Canada and the United States govern the border waters, have worked relatively well. Other transboundary arrangements have proved to be cumbersome or even unworkable. The need for effective legal arrangements (and other institutions) for the governance of transboundary waters will intensify as border populations grow. This will be particularly true of U.S./Mexico boundary waters. Comparative studies that evaluate various legal and institutional arrangements, identifying the strengths and weaknesses of each, could form the basis for the development of effective new ways of managing transboundary waters. Existing laws and institutions often fail to address common pool or public good characteristics. In many instances, instream flows and ecological values are not adequately protected, and it appears that new laws may be needed if such protection is to be provided. The uncertainty, inefficiency, and inequity associated with the current status of federal reserved Native American water rights (as well as other federal reserved rights) need to be addressed. Similarly, laws or rules that provide nontraditional claimants with access to the nation's waters could address issues of fairness and resource uncertainty. Legal provisions sometimes inhibit the development and implementation of innovative policies for water management. For example, adaptive management applies findings from carefully monitored experiments to the adjustment of future management and policy decisions in light of changing conditions. It aims to incorporate diverse stakeholder preferences within the context of complex ecosystems, and it underpins water management programs in several areas of the United States, such as the Florida Everglades

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Page 35 The statutes that govern U.S. water resources are highly variable across the U.S. In the Pacific Northwest, such as Mac Creek, Oregon, many streams are better protected from water quality and quantity degradation by Forest Practice Acts and the Endangered Species Act than by state water laws. ~ enlarge ~ and Glen Canyon Dam on the Colorado River (NRC, 1999c). Yet, it is unclear whether adaptive management can be incorporated into statutory water management programs that require the selection of fixed goals and specific means for reaching them. Policy- and legal-based research can improve our understanding of how water resource institutions can integrate adaptive management practices into existing management and legal regimes, while simultaneously protecting the rights of stakeholders. The water resources research agenda for the twenty-first century should give priority to developing new legal arrangements governing diversions and consumptive use that emphasize flexibility and facilitate the management of water scarcity. Such research should: develop legal regimes that promote effective groundwater management and facilitate conjunctive use of surface water and groundwater; explore and resolve issues related to the governance of water where

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Page 36it has common pool and public good attributes and arrange for the management of transboundary waters; resolve the uncertainties attending to Native American water rights and other federal reserved rights and incorporate considerations of equity into existing water management laws; conduct comparative studies of water laws and institutions with special emphasis on the dynamics of institutional change; and promote the wider use of adaptive management. ECONOMIC INSTITUTIONS During the 1980s and 1990s, increasing emphasis was placed on the possibilities of using economic institutions to manage water resources (Haddad, 2000). Economic institutions are by definition adapted to the management of scarcity, and pricing and markets have been shown to have much promise in managing water scarcity. Additional research, however, remains to be done. There are a number of critical issues related to the adequacy with which economic institutions allocate common pool resources and pure public goods. In addition, there are issues related to how to deal with third-party impacts of water markets. Additional research on economic institutions could help to resolve many of these issues and thereby facilitate the use of economic institutions in managing water scarcity. Continuing research is needed to develop improved methods for estimating the value of water in circumstances where it is not marketed or where market-generated prices do not adequately reflect true value. Thus, for example, issues of how to value aquatic habitats and the ecological services provided by aquatic habitats remain to be resolved. Although there is need for improved methods of valuing non-marketed resources that are unrelated to water resources, there is a specific need for improved valuation techniques in the water resources arena. In addition, research is needed to evaluate and develop methods for allowing the services deriving from the common pool and public good nature of water to be allocated through markets or in association with markets. A number of efforts have been made to protect and enhance environmental resources in marketlike situations, including the imposition of taxes on the gains from trade. Ex post studies of the efficacy of existing methods and proposals for protecting environmental uses would be helpful. Techniques are also needed to allow appropriate entities to acquire additional water for environmental and other public purposes through markets. In the same vein, research focused on the development of

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Page 37 economic institutions that would protect and enhance the common pool and public good attributes of water resources would be helpful. Further research on the development of efficient markets and marketlike mechanisms for allocating water are also needed. Markets can take many forms, and there has been considerable effort to identify the forms that are best suited for water rights, storage, conveyance, and water itself in both the United States and Europe. Experiences with marketlike institutions in other sectors, such as energy, should also be evaluated (Tietenberg, 2000). In particular, studies are needed to develop innovative low-cost ways for predicting whether adverse impacts on third parties who are not directly involved in the market transactions are likely to be part of a given market transaction, and for estimating a priori how large these impacts will be. Methods of accounting for third-party effects that keep transaction costs low must be developed (NRC, 1992a). Studies of the benefits and costs of privatizing water and wastewater treatment services are also needed. Such studies should focus on the question of whether services can be provided more efficiently by the private sector and the related question of how the private sector is to be regulated so as to prevent monopolistic pricing practices and ensure that public resources are allocated and used fairly and efficiently. Finally, different pricing mechanisms and their application in different management schemes should be explored. Marginal cost pricing (i.e., setting the price of water equal to the cost of providing the last increment of supply) is not always possible or appropriate. Systems that mimic marginal cost pricing (such as increasing block rate structures found in the electric power industry) but do not conform in all respects may be superior in some instances. Much controversy still surrounds estimates of the price elasticity of demand for water. 2 Empirical estimates of how water consumption for each water-using sector varies in response to different water prices would provide a useful basis for utilizing prices to manage water resources. The water resources research agenda of the twenty-first century should give priority to: developing new and improved methods for estimating the value of nonmarketed attributes of water resources; investigating the potential use of economic institutions to protect common pool and pure public good values as they relate to water resources; 2 Price elasticity of demand is the percent change in the quantity demanded of a good divided by the percent change in price.

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Page 38 devising and developing more efficient markets and marketlike arrangements that account appropriately for third-party impacts and in which public goods and common pool resources are accorded a “level playing field”; elucidating the role of prices, pricing structures, and the price elasticity of demand; and determining the appropriate role of the private sector in achieving efficient provision of water and wastewater services. This research should also focus on efficient and effective ways of regulating private providers. EMERGING SOCIAL SCIENCE ISSUES There are several important social science research issues that are not clearly of legal or economic bearing but will need renewed emphasis and attention in the twenty-first century. Anthropologists, geographers, political scientists, psychologists, and sociologists have not been constantly involved in water resources research, although the importance of broader perspectives in the study of human institutions has been recognized (NRC, 1992c, 1997a). The effective management of many of our water problems will require contributions from all these disciplines. Differing value structures and cultural norms, the importance of perception, and the role of politics and political institutions are but examples of areas where contributions from the social sciences are needed. Over the past 25 years, there has been a growing awareness that individual perceptions and social values greatly influence public decisions (Fischhoff, 1995). Perceptions of experts, stakeholders, and the public about the risks, benefits, and mitigation options affect risk management processes. Each party's knowledge, beliefs, and overall perception of the decision process can significantly change the results of that process (Fischhoff, 1995). However, management strategies are only infrequently based on a systematic assessment of the knowledge, perceptions, and beliefs of differing parties. Science-based methods such as mental modeling and value integration have received little recognition to date by the water management community as valuable approaches (Bostrom et al., 1992; Gregory et al., 2000). Applied research utilizing these and other science-based methods is needed to determine the key factors that affect water-related risk perceptions, communications, and decision processes. New knowledge about stakeholders' concerns and priorities will provide a sound foundation for designing and implementing effective, responsive water risk management and communication strate-

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Page 39gies. The new knowledge created by this research will be crucial to designing comprehensive risk communication strategies, creating effective stakeholder dialogues, and ensuring that water research findings are disseminated appropriately to support personal and public decision-making processes. In the last decade or so of the twentieth century, stakeholder input became very important in the formulation of water policies and water plans. A substantial amount of experience was gained from different methods for obtaining stakeholder input. Experience was also gained from situations in which stakeholder interests were relatively easy to reconcile and where the plurality of interests and intensities of interest virtually denied the possibility of achieving a consensus. There have been few systematic efforts to analyze and distill these experiences. Such research is badly needed because water managers must account for stakeholder preferences in a way that is efficient and that honors those preferences. In many instances, user-organized institutions such as cooperatives, special districts, and mutual companies have been employed widely and successfully to develop and distribute water. Studies that identify the circumstances in which different kinds of organizations are likely to be successful and effective are needed, as well as research on new and innovative organizational arrangements for developing and distributing water. It will also be important to elucidate the links between user-organized institutions and the legal and policy environments in which they thrive (Blomquist, 1992). Only limited attention has been devoted to the cultural, religious, and ethical facets associated with water and its use (e.g., Brown and Ingram, 1987; Espeland, 1998). Additional research is needed to identify the special attributes that will have to be accounted for as the population of the United States becomes more culturally diverse and as water scarcity intensifies. These factors critically influence the ways in which different groups have organized historically to manage their water resources. Comparative institutional studies that focus on the cultural and ethical determinants of water management organizations will be useful not only in defining the needs of different groups, but also in helping to design optimal institutions for managing water resources. Finally, the need for studies to inform and enlighten the making of water policy will be more critical than ever. Too often, policy analysis and the development of scientific conclusions related to policy have been stymied because they have been confused with the actual making of policy. The WSTB believes that good water policy is based on good science and good analysis and urges that people not confuse efforts to develop information to

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Page 40 ~ enlarge ~ Contamination of streams and estuaries from runoff and nonpoint sources results in a number of fish advisories, as indicated by this sign near a contaminated area around Hunters Point, CA. Despite being posted in three languages, this warning is frequently ignored by local residents. support the policy-making process with policy-making itself. The specific research questions and the kinds of analysis needed will be specifically dependent on the policy issues under consideration. The nation has accumulated over a century of experience with a variety of water policies and management modes, yet we have not learned as much as we might have from that experience. Too often water policies, experiments, and projects have been abandoned or completed without any ex post facto assessments as to whether they have worked well or not. Many observers have noted that current policies and policy-making efforts appear uninformed by what has gone on before (White, 1999). Ex post evaluations of completed water projects, of water policies, and of experience with water management regimes should be high on the research agenda of the future. The water resources research agenda for the twenty-first century should give priority to:

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Page 41 determining the key factors that affect water-related risk communication and decision processes; assessing the effectiveness of user-organized institutions for water distribution and identifying the legal and policy environments in which they succeed; analyzing the range of experience with different processes for obtaining stakeholder input in the making of water policies and water plans; elucidating the cultural and ethical factors associated with water use, and comparing institutions having different cultural and ethical bases; informing the policy-making process; and evaluating the strengths and weaknesses of past water policies and projects.