In many parts of California, water districts set prices so that agricultural users pay far less than private users and far less than the actual cost of water. While the adoption of a marginal cost regime would produce enormous gains in efficiency, it would inevitably create losers as well as winners. To expect the problems of implementing such pricing in California, reformers need to anticipate which regions and cultures in California which would most affected.The case offers … Read more »

In many parts of California, water districts set prices so that agricultural users pay far less than private users and far less than the actual cost of water. While the adoption of a marginal cost regime would produce enormous gains in efficiency, it would inevitably create losers as well as winners. To expect the problems of implementing such pricing in California, reformers need to anticipate which regions and cultures in which California would be the most affected.The case provides the necessary information to do a partial equilibrium incidence analysis, including data on the average factor share of water by harvesting, the mean for each culture caused by marginal applications of water, the degree of inter-regional variation in the ratio of non-water inputs, and the role of individual crops in California and worldwide market. HKS case number 710.0
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Dorothy Robyn
14 pages.
Release Date: 1 January 1986. Prod #: HKS537-PDF-ENG
California Water Pricing HBR case solution

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