Sheer Well Power: Bargaining and Power in Water Markets
Access to clean water is imperative to food security, the livelihoods of agricultural workers, and public health as a whole. In the United States, publicly owned municipal water infrastructure in many metropolitan and rural areas has been in place for over a century, providing individuals, farms, and businesses alike with a sufficient supply of water throughout the year, subsidized by the government. However, some countries lack the formal institutional structures needed to facilitate ready access to water, resulting in the reliance on markets to meet demand. In the research paper Do buyers have bargaining power? Evidence from informal groundwater contracts, data from the Indian state of Karnataka is analyzed, giving light to the impact of the unique market conditions on the availability of water for agricultural workers. Under the analysis, it is concluded that due to geographical reasons, water and water infrastructure become heterogeneous goods (not homogenous goods), resulting in the seller trying to extract surplus from buyers due to an inequality between the willingness to pay of the consumer and willingness to accept of sellers (and an inequality of information favoring the seller).
Connecting to the reading on Bargaining and Power in Networks, we can see that in more rural areas without pre-existing water infrastructure, the seller dominates the buyer in almost every aspect; they have tremendous power over the buyer. Regarding dependence, it would be immensely costly to sign a contract with another water supplier from further away; other options confer far less value than the one currently present. Exclusion is also present; the seller can easily choose to close the taps for these areas and be marginally impacted, while the buyer depends on the water to irrigate their crops and would suffer an immense economical hit. Satiation is also of import; while buyers depend on water consistency throughout the year, they are never truly satiated. Betweenness is also addressed; the author notes that in more rural areas with more water scarcity, the existing seller has even more power over the buyer, whereas in areas with more sellers and buyers the market is closer to a perfect market, where the willingness to pay of the buyer and the willingness to accept of the seller are equal. Thus, the seller has more power when these conditions are met; in rural areas where water and water infrastructure are more scarce, preexisting sellers have more power and take more of the resource pool in each exchange.
The arrangement of water sellers and purchasers can also be determined to be stable given the outside outcomes. As water rights are related to land possession, one can establish a tube well on their own land, usually involving a fixed cost. Some farmers choose to do this. In a stable outcome, no node X and propose to Y a deal that makes both better off—given the fixed cost and utility of establishing a private irrigation system, this becomes a more viable option when infrastructure costs are high. A choice to turn to water sellers comes with a surplus over building one’s private irrigation system, however, individuals often do not have complete information or know how much building this costs, which is why the surplus is distributed in favor of the seller of water.
Finally, an interesting aside is that family connections are mentioned as a way to increase bargaining power. This reflects the concept of status discussed in the textbook; as water sellers perceive the purchasers of water to have more social status due to kinship or friendly ties, this increases the power of the buyer to a point where surplus is allocated in a way that nears a perfect market.
When bargaining for water in absence of an omnipotent government body, power is often skewed toward those who sell water. Private groundwater sources can be established, yet the lack of complete information often results in the surplus being skewed toward the seller. This case study highlights some important extensions to the theory of bargaining power; equal information about one’s own choices is important to reach a stable outcome, and scarcity in and of itself results in less bargaining power.
Reference: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0236696