Question 1:

Market Interplay, Municipal Utilities, and Common-Pool Resource Governments often are surprised by private responses to what appears to be relatively straightforward and sensible public decisions. It should be no surprise that businesses 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 reactions 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.

As water rates go up, some Bostonians are going down--about 900 feet to find water. Average water and sewer bills in Boston have more than tripled since 1985 to cover costs of cleaning up Boston harbor. To cut their bills, several Boston businesses have recently drilled their own wells. "It's a very alarming trend," says Jonathan Kaledin, executive director of the National Water Education Council, a Boston-based group that tracks water project funding issues. As customers "leave the system," those who remain must shoulder higher funding burdens. If such drilling becomes a trend, it could undermine funding in a number of cities for projects to comply with clean-water laws. New York City water projects, for example, are expected to cost more than $10 billion during the 1990s, according to a recent report by Mr. Kaledin's group. Boston officials also worry a, a fill-in swamp may sink if wells lower rot that buildings in the city's Back Bay are the water table. Structures there rest on immersed wooden pilings that "will in two or three years" if exposed to air as the water level drops, warns Bo City Councilman David Scondras. City officials, citing over 400 known hazardous-spill sites in Boston, also fret that wells may tap into polluted water But the economic arguments for drilling are overwhelming, says Roger Berkowitz, co-owner of Legal Sea Foods, a Boston restaurant chain that recently drilled a well. Its 15,000 gallon-a-day gusher saves the company $2,500 a month by providing water for laundry and other uses. Though it isn't used for drinking, Mr. Berkowitz says, tests show water from the chain's well surpasses Boston's municipal water in purity

AnswerThese 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?

2.Is that financing approach appropriate for the type of good involved?

3.What options might governments in the Boston area have?

4.What would you recommend to prevent further damage?