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<br />.' <br /> <br />low valued uses at the expense of higher valued uses elsewhere. <br /> <br />Some would argue that water is such a fundamental resource that one cannot let the market <br /> <br />operate for water. However, one can see the weakness of this argument by applying a simple <br /> <br />thought experiment: what if we had the law of prior appropriation and institutional rigidities <br /> <br />in the allocation of another necessity, electricity? Historic users of electricity such as steel <br /> <br />mills could surely not be allowed to sell "their" power to upstarts like mM or Hewlett- <br /> <br />Packard. No, there is simply not enough power to spare for these new uses, no matter how <br /> <br />valuable they might be. Use electricity for air conditioning at the expense of steel <br /> <br /> <br />production? Why air conditioning is a luxury, we can do without; steel is a necessity. Do <br /> <br />these arguments sound familiar'? Our country would be much poorer today if we locked in <br /> <br />the historic pattern of electricity use and not allowed electricity supply to move to new, <br /> <br />highly valuable uses. <br /> <br />CHALLENGE OF INCORPORATING PUBUC V ALUFS FOR WATER <br />Because municipal and industrial uses of water have market prices, cities can determine what <br />, various water using customers will pay for additional water. The large disparities in what <br />urban areas will pay for water and what agricultural water users earn from an acre foot of <br />water is a signal of the relative economic value of water in these two uses. While the <br />mechanics of water pricing, drought year water markets and water transfers are messy, the <br />prices are a good (although not perfect) indicator of the value of water in the two alternative <br /> <br />uses. <br /> <br />4 <br />