Question

CASES FOR DISCUSSION CASE 1-1 Market Interplay, Municipal Utilities, and a Common-Pool Resource Governments often are surprised by private responses to what appear to be relatively straightforward and sensible public decisions. It should be no surprise that busi- nesses respond to higher prices for their purchases by trying to economize on their use of those more expensive resources. What may be surprising is how these reac- tions themselves create even more complex problems for the government. In the case described here, the normal business response is particularly interesting because it crosses between the operation of a municipal utility and the exploitation of a common-pool resource. Here is a case from the Wall Street Journal. Consider These Questions 1. Identify the various types of goods (private, public, and in between) involved in this case. What was the primary objective being sought and how was it being financed? Is that financing approach appropriate for the type of good involved? 2. What options might governments in the Boston area have? 3. What would you recommend to prevent further damage?

Answer 1

Q-1: The type of good involved in this case is public - water. Due to high water bills, Bostonians started drilling own wells and they started leaving the system of paying water bills and started using water from their own drilled wells. The projects were funded by bills that people pay who were in the system and now as people started leaving the system there will be a problem in financing and the people who are remaining will have higher financing burden.

The good involved is public and financing approach is not appropriate this water projects should be funded by the government and the financing burden should be on the head of government as to stop depleting water and stop people digging their own wells.

Q-2 Government of Boston can give concession on water bills if people use in some limited quantity in this way the water usage will be lowered and people will not drill their own well.

Q-3 To prevent further damage of water their should be strict rules and exorbitant taxes on drilling new wells and if people use the water provided by the government agency then there should be some concession on water bill if people use the water in optimum amount.