economics

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 Accessed: 05-11-2018 16:00 UTC

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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 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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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 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- 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- 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. 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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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: 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 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, 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 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- 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 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 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 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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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. 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 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:

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 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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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, 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- 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 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 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 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 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 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 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 (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, "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 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 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- 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 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.

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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