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<br />-' ~" <br /> <br />6 <br /> <br />1.3 Stages of Hater Management in the, South Platte ,Basin <br />A general concept underlying the, analysis is that as the complexity <br />and intensity of water demands increase (from a growing.population and <br />economy), the value of. water rises. and the appropriate technological <br />and institutional mix evolves and changes. Such changes are observable <br />in the South Platte Basin. It is our intent to be prepared with <br />analytic procedures and institutional means to ease the transition among <br />stages. We attempt to elaborate on this' general concept below. <br />First, water allocation and pricing institutions are costly to <br />administer. These costs, termed transaction costs in economic jargon, <br /> <br />increase with the complexity of the institutional arrangements. <br />(Transaction costs include (a) the information costs of the providers <br />and recipients of goods and services in the economy; (b) the cost of <br />making contracts and agreements; and (c) the costs of policing these <br />contracts.) <br />Second, social benefits (in the form of more productive and <br />equitable resource allocation and reduced conflicts) are derived from <br />improved water allocation institutions. <br />Third, as with all productive activities in the econOmy, resources <br />devoted to administration are subject to diminishing returns. <br />Hence, the optimal degree of social expenditure on administration <br />depends on the stage of economic development and the unit value of <br />water. Where water is plentiful relative to demands, . little or no <br />regulatory effort is required (e.g. the riparian doctrine of water <br />law can sUffice). Where demand presses against sUpplies, more complex <br />institutional arrangements are called for. Water rights first must he <br />secure, affording protection of tenure and from physical uncertainties <br /> <br />I <br />I <br />