Description

The Metropolitan Water District of SouthernCalifornia (MET), a cooperative of retail andwholesale water utilities, serves 18 million people.This case study explains how MET -- as a cooperative-- is inefficient and how its member agencies sufferfrom this inefficiency. I show that MET isinefficient by demonstrating that its members haveheterogeneous preferences over outcomes: Members thatare more dependent on MET prefer policies thatincrease water supply; others prefer lower rates.Although heterogeneity had existed since at least the1940s, MET avoided conflict well into the 1970s. Iexplore two possibilities for efficiency despiteheterogeneity. First, MET had so much water that itcould treat it as a club good, i.e., members did notneed to agree on policies over non-rival water.Second, member agencies may have had socialpreferences (one for all and all for one). Shrinkingsubsidies and supplies in the 1960s changed waterfrom a club to private good. The end of socialpreferences is not so obvious, so I asked MET''smember agency managers to participate in public goodsexperiments. They do not appear to have socialpreferences.