Up until now, Planet Money Summer School has looked at individual decisions. But it’s time to consider how our decisions affect everyone else. In Class 4: how do economists tally up the good and bad impacts we have on other people?
We travel to Porterville, California, where a drought has dried up residents’ wells. There’s water under their homes; they just can’t get to it.
Who can? Farmers growing almonds and pistachios, who can afford to drill deeper and deeper wells. And with such a lucrative crop, they have no incentive to share the water. But California is looking at ways to change that.
Our resident economists, Betsey Stevenson and Justin Wolfers from the University of Michigan, say that there are only a few ways you can manage a scarce resource. Government can step in and make rules about who gets what. Or perhaps more efficiently, the government could tax the resource and make it more expensive to take an extra sip of water from a group well. There is also the concept of cap and trade, which limits what you can use. But you can sell your share to someone else.
The options for water access during a drought are the same ones that economists have talked about to combat global warming. You need to change the incentives of individuals so they feel the cost of their effects on everyone else.
- Tragedy of the commons
- Cap and trade
- What is a resource that you share with your family or neighbors? Is it being over-consumed? And if not, what is preventing people from over-consuming it? Tell us about it. #PMSummerSchool
Music: “Krackatoa” and “Cracked Nut Suite”
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