Water As Property The Four Different Types of Goods

Water As Property

The Four Different Types of Goods

By Raphael Zeder | Last updated Jul 31, 2020 (Published Oct 15, 2016)

In economics, goods can be categorized in many different ways. One of the most

common distinctions is based on two characteristics: excludability and rivalrousness.

That means we categorize goods depending on whether people can be prevented from

consuming them (excludability) and whether individuals can consume them without

affecting their availability to other individuals (rivalrousness).

Based on those two criteria, we can classify all physical products into four different

types of goods: private goods, public goods, common resources, and club goods. We

will look at each of them in more detail in the video and the paragraphs below.

Private Goods

Private Goods are products that are excludable and rival. They have to be purchased

before they can be consumed. Thus, anyone who cannot afford private goods is

excluded from their consumption. Likewise, the consumption of private goods by an

individual prevents other individuals from consuming the same goods. Therefore,

private goods are also considered rival goods. Examples of private goods include ice

cream, cheese, houses, cars, etc.

Public Goods

Public goods describe products that are non-excludable and non-rival. That means no

one can be prevented from consuming them, and individuals can use them without

reducing their availability to other individuals. Examples of public goods include fresh

air, knowledge, national defense, street lighting, etc.

Common Resources

Common resources are defined as products or resources that are non-excludable but

rival. That means virtually anyone can use them. However, if one individual consumes

common resources, their availability to other individuals is reduced. The combination

of those two characteristics often results in an overuse of common resources (see also

the tragedy of the commons). Examples of common resources include freshwater, fish,

timber, pasture, etc.

Club Goods

Club goods are products that are excludable but non-rival. Thus, individuals can be

prevented from consuming them, but their consumption does not reduce their

availability to other individuals (at least until a point of overuse or congestion is

reached). Club goods are sometimes also referred to as artificially scarce resources.

They are often provided by natural monopolies. Examples of club goods include cable

television, cinemas, wireless internet, toll roads, etc.

Summary

There are four different types of goods in economics, which can be classified based on

excludability and rivalrousness: private goods, public goods, common resources, and

club goods. Private Goods are products that are excludable and rival. Public goods

describe products that are non-excludable and non-rival. Common resources are defined

as products or resources that are non-excludable but rival. And last but not least, club

goods are products that are excludable but non-rival.

https://quickonomics.com/different-types-of-

goods/#:~:text=Summary,%2Dexcludable%20and%20non%2Drival.

https://www.thoughtco.com/excludability-and-rivalry-in-consumption-1147876

https://courses.lumenlearning.com/boundless-economics/chapter/public-goods/

What type of good is water?

A. A Public Good, a Common Good, or a Private Good?

“Public goods,” as distinguished from private goods, share two qualities: indivisibility and

publicness.

Because public goods are indivisible, one cannot divide them up or buy as much as

one wants, and because the goods are public, one cannot keep others from accessing and enjoying

the goods as long as anyone can access and enjoy them. In other words, a public good is one that

all within the relevant public must enjoy more or less equally, or no one can enjoy the good at all.

Public goods generally are free goods because consumers cannot be excluded from enjoying the

good.

The only costs, if any, associated with a public good are the costs of capture, transportation,

and delivery, where those are necessary, and not a cost for the good itself. How much can one

charge others for viewing the blue sky over one’s property? This creates an important problem: If

you invest in developing or improving a public good, others who invest or pay nothing will enjoy

the benefits of your investment.

You cannot exclude them from enjoying the good.

*546 Economists use a lighthouse as the classic example of a public good.

A lighthouse warns

all ships that come within sight regardless of whether the ship pays or not. One cannot solve the

problem by sending a boat out to collect from the ship shortly before the lighthouse comes in sight,

for the appearance of the boat would be just as effective a warning as the lighthouse--and the ship

could simply change course without paying. Such “free riders” seriously inhibit investment, unless

the government (or some other institution) is able to assure that all (or nearly all) pay for the

benefits they receive.

The market simply won’t work; regulation will.

As economist Ronald Coase demonstrated in The Problem of Social Cost,

a private-property

market system is a most efficient mechanism for allocating resources to particular uses when it

works, but the system fails if there are significant barriers to the functioning of a market.

Water

is not indivisible and *547 public in the strictest sense, leading to occasional arguments that water

is not a public good.

Yet even economists who make such arguments continue to use water

metaphors when discussing what they concede are public goods: “common pool resource,” “spill

over effects,” and so on.

Water, in some settings, can be a private good. We have all bought bottled water. This does not

dispose of the question of whether bulk water--water in its natural condition--should be treated as

a public good. Few things in this world are strictly indivisible and public. What a culture treats as

a public good is determined not just by its physical characteristics, but also by its social and

economic characteristics. When the costs to exclude others would be so high that it is impractical

to exclude others from access to the good, or when there are *548 other (perhaps cultural) reasons

why a society will not exclude some of its members from access to the good, the good is treated

as if it were a public good.

The social or economic characteristic that usually leads to treating something as a “public good”

is that transaction costs are so high that no market can function with even minimal effectiveness.

Ronald Coase has argued that analyses that ignore transaction costs are typical of the “blackboard

economics” that he has concluded is the bane of most academic economists.

The most important

and consistent simplifying assumption that economists make is to assume a “frictionless market”-

-a market without transaction costs. Lawyers, on the other hand, focus precisely on the costs and

frictions of the marketplace for their role is to minimize, accommodate, or overcome such

problems.

Lawyers are not concerned about how ideal markets would function--except as a

baseline for measuring the failure of real markets.

Another reason for treating something as a public good is because social values require that all

receive a “fair” share of the resource, or at least that one’s access to the good not be subject to the

strictures of the marketplace.

When a good is considered essential for the minimum well being

of members of society, governments undertake to provide the good to all without direct charge.

This is especially true when transaction costs make markets impossible. Such goods could be

termed socially created public goods. Examples of socially created public goods include fire

protection or public education.

*549 Water is just such a commodity. This is most obvious for the protection of instream flows.

Less obvious, but no less true, is the public nature of water when withdrawn for private use. While

it is easy enough for someone to own and manage water unilaterally in small amounts (for example,

bottled water), a river is an ambient resource that can never be fully controlled or owned. Doing

something to water on a large scale necessarily affects many others, making it difficult to procure

the contractual assent of all significantly affected persons. As we shall see,

transaction costs on

all but the smallest waterbodies quickly become prohibitive. This reality underlies the treating of

water as a free good--a good available to all at no cost for the water itself, but only for the cost of

capturing, transporting, and using the water. Those who insist that private markets should be the

prime means for protecting instream values miss the point entirely.

Some economists complicate this picture by talking about “common goods” as distinct from

“public goods.”

These economists tell us that common *550 goods differ from public goods in

that, while the goods are shared among a group of common owners, the goods can be exhausted

and not everyone in the universe has equal access to the goods. In other words, public goods are “

non-rivalrous,” but common goods are “rivalrous.” Because of these features, the consumption of

common goods by one person reduces one or more other person’s ability to consume the same

good. In other words, “common goods” exhibit some measure of subtractability and excludability-

-qualities that, they tell us, do not apply to true “public goods.”

Because of these qualities, the

rate of consumption of a “common good” varies according to the number of users and the type of

use. Nevertheless, it is possible for many consumers to benefit jointly from the resource as long as

there are means for excluding others from using the resource.

If we take this third category of goods seriously, there are very few true public goods. Even a

lighthouse, often presented as the paradigm of a true public good, is not used by everyone in the

world, but only by those on ships coming within range of its light. Perhaps only the blue sky

qualifies as a true public good. In fact, common goods are just public goods for which there is a

limited group of “co-owners” and the level of demand has approached or exceeded the available

supply. From a legal point of view, the most central managerial problem regarding public goods

is precisely the most central managerial problem for common goods: How can one recover the cost

of maintaining or enhancing the good when a significantly large group of people have access to,

and the legal right to the use of, a good without direct charge for the use they make. This leads

directly into the “tragedy of the commons.”

Advocates of markets for allocating and managing water are not entirely off base. They are

demanding an end to the treatment of water as a free good. Water should not be a free good.

Economic incentives including fees, taxes, and “water banks,” should be introduced for those

who use water so they will more realistically evaluate the social consequences of their conduct.

But resort to economic incentives should not obscure the fact that water remains the prime

example of a public good for which prices cannot be set in a marketplace. The reality of

transaction costs should give even the most free-market oriented economist pause to consider

whether true markets could function effectively for water resources.

Ultimately, true markets

must remain marginal to the management of large quantities of water for numerous diverse users.

Joseph Dellapenna, Adapting Riparian Rights to the Twenty-First Century, 106 W.Va. L. Rev. 539

(2004).

The State Owns the Water?

Colorado Constitution, Article 16 Mining and Irrigation

Section 5. Water of streams public property. The water of every natural stream, not heretofore

appropriated, within the state of Colorado, is hereby declared to be the property of the public,

and the same is dedicated to the use of the people of the state, subject to appropriation as

hereinafter provided.

The Montana Constitution declares that “[a]ll surface, underground, flood, and atmospheric

waters within the boundaries of the state are property of the state . . . and are subject to

appropriation for beneficial uses[.]” MONT. CONST. art. IX, § 3; see also MONT. STAT. ANN. §

85-2-102(5) (West 2019) (defining “beneficial use”).

The Constitution of the State of New Mexico provides that “the unappropriated water of every

natural stream, perennial or torrential, within the state of New Mexico, is hereby declared to

belong to the public and to be subject to appropriation for beneficial use, in accordance with the

laws of the state”, and that temporal priority shall give the better right. N.M. CONST. art. 16, § 2.

For appellee's argument is still based on the legal fiction of state ownership. The fiction is

illustrated by municipal water supply arrangements pursuant to which ground water is withdrawn

from rural areas and transferred to urban areas. Such arrangements are permitted in Nebraska.

Sporhase v. Nebraska ex rel Douglas, 458 U.S. 941 (1982).

Water (or the right to use water) as a constitutionally protected property

right

B. Key Lessons from the Cases

While the geographic distribution and growing number of groundwater/takings cases are both

intriguing, the more important lessons from the cases arise from their reasoning and outcomes.

Below, I describe several of the central themes.

1. Groundwater Use Rights as Property

One of the first lessons from the cases involves the status of groundwater use rights as

constitutional property. In the American legal tradition, and particularly in the American west,

water rights are commonly thought of as a subspecies of property rights, and lawyers commonly

believe--or sometimes simply assume--that those rights are subject to constitutional protection.

172

Nevertheless, in recent years, a few commentators have questioned that assumption.

173

They raise

a mix of assertions, arguing both that water rights are not uniformly established as constitutional

property and that constitutionalized water rights are *281 unjustified in theory and harmful in

practice.

174

Similar claims sometimes emerge in litigators’ briefs. In the Day litigation, for

example, some amici argued that constitutionalizing a property right to in situ groundwater would

sound the death knell for sensible regulation.

175

That view also finds some support from

comparisons with the laws of other countries. Many have effectively rejected regulatory takings

protection for groundwater use rights, or for property rights more generally, without losing their

ability to support advanced resource-based and industrial economies.

176

Nevertheless, the American groundwater/takings cases provide little support for arguments against

treating water rights as constitutional property. Many cases clearly state that groundwater use

rights qualify as constitutional property and are protected by the takings doctrine.

177

Day

exemplifies these cases, as does McNamara v. City of Rittman, a recent Ohio Supreme Court

case.

178

There, the court unequivocally concluded, “Ohio recognizes that landowners have a

property interest in the groundwater underlying their land and that governmental interference with

*282 that right can constitute an unconstitutional taking.”

179

A few cases do not address the issue,

some address it ambiguously,

180

and some have stressed that the constitutional protection for water

rights is weak.

181

But I found only one decision that clearly rejected the idea of a property right in

groundwater. In Village of Tequesta v. Jupiter Inlet Corp., a 1979 decision, the Florida Supreme

Court concluded a discussion of groundwater rights with the emphatic statement that “[t]his ‘right

to use’ is not ‘private property’ as contemplated by article X, section 6, [of the] Florida

Constitution requiring full compensation before taking for a public purpose.”

182

That statement is

entirely consistent with conceptions of water rights as sub-constitutional property. But within

American groundwater jurisprudence, that statement also is unique.

Dave Owen, Taking Groundwater, 91 Wash. U. L. Rev. 253 (2013).

Water as a human right

Resolution adopted by the General Assembly on 28 July 2010 [without reference to a Main

Committee (A/64/L.63/Rev.1 and Add.1)] 64/292. The human right to water and sanitation

Recognizes the right to safe and clean drinking water and sanitation as a human right that is

essential for the full enjoyment of life and all human rights;

Water should be “adequate” for human dignity, and should not be simply treated as an economic

good.

In order to be make water adequate for human dignity in terms of quality, quantity, and

access, special active efforts are needed. The human right to water approach should focus on the

use of water by states vis-à-vis other states, as in the public health and cultural definitions, where

the human right to water focuses on the use of water by natural persons, either individually or

collectively. The effective implementation of the human right to water will provide natural persons

with their right to water in terms of quality, quantity, and access. The Committee on Economic,

Social, and Cultural Rights emphasizes this intent by defining the right to water as a right to

“sufficient, safe, acceptable, physically accessible and affordable water.”

Under the right to

water, both quantity and quality of affordable water are directly connected to safe drinking water

and sanitation, and are ultimately connected to the health and life of people. Low cost or free access

to water, for certain vulnerable sections of the population, is also critical to the health and life of

those vulnerable populations. However, this definition by the Committee focuses only on the

water, not humans. By defining water as a human right, individuals or states will be able to call

upon an international human rights regime that has been developed since World War II to seek

judicial enforcement at both local and international levels.

Jootaek Lee and Maraya Best, Attempting to Define the Human Right to Water with an

Annotated Bibliography and Recommendations for Practitioners, Georgetown Envtl. L. Rev. 75

(2017).