Decision Memo

California Water Pricing

As a policy analyst for the California Department of Agriculture, you have been asked by Tess Bradley, the Commissioner of Agriculture, to address the effects of pricing water in California. The Commissioner is considering three alternatives for pricing water in California: the current system, a system based on the marginal cost of water, and an open market for water where farmers could sell the water allotted under their current water rights. Write a memo to the Commissioner where you assess these alternatives and make a policy recommendation. In writing your memo you should consider the following:

1. Which crops and which regions of California would be most affected, and how would they be affected, by a shift to a system of water allocation in which farmers are required to pay prices set at marginal cost of their water?

2. A move to marginal cost pricing would most likely cause a shift of water usage away from agriculture and toward urban areas. Do you believe such a shift would be appropriate? By what criteria would you address such a question?

3. Compare a system of marginal cost pricing with one which allows farmers to sell the water they are currently using on the open market with respect to water prices and water usage by farmers and others.

Your memo should not exceed 500 words.