[dahart]

> But less than at lower prices.

That’s just assumption, and history has sometimes proven this assumption wrong. Higher prices do not automatically yield lower demand. It may take a threshold price increase before consumption changes at all, especially for scarce resources.

It’s true that alternatives change the equation, that I agree with. But the problem with allowing the market to sort it out is that Saudi Arabia might always be able to afford more than small town, Arizona. If you raise prices, you might only price out the locals and surrender your water to foreign interests. Charging money is in no way certain to fix this problem, it might make everything even worse.

> Pricing an externality means assigning a cost to use of some scarce resource, and letting the market decide if and when the resource is worth the cost.

What you just described is cost benefit analysis followed by free market thinking, definitionally speaking.

[richk449]

Here’s a definition of cost benefit analysis:

A cost-benefit analysis is the process of comparing the projected or estimated costs and benefits (or opportunities) associated with a project decision to determine whether it makes sense from a business perspective.

Generally speaking, cost-benefit analysis involves tallying up all costs of a project or decision and subtracting that amount from the total projected benefits of the project or decision. (Sometimes, this value is represented as a ratio.)

That is simply not the same as applying a tax or surcharge to something to internalize an externality.

[dahart]

I agree with that; you’re just not thinking all the way through what it means to do what you suggested, assign a cost to a scarce environmental resource in order to avoid the kind of negative future consequences we’re discussing here. In this context, the premise behind assigning such a cost requires a cost benefit analysis.

[richk449]

No, assigning a cost requires evaluating the cost. It doesn’t require evaluation of the benefits.

[dahart]

Hehe, then you can’t possibly claim a mild price increase is mildly helpful.

[richk449]

Truly, you have a dizzying intellect.