The research titled: Water Theft as Social Insurance

Today I came across interesting research titled, ‘Water theft as social insurance: south-eastern Spain, 1851-1948’ published by Javier D. Donna and Jose-Antonio Espin-Sanchez, in The Economic History Review published by John Wiley & Sons Ltd. on behalf of Economic History Society.

We’ve all known about the tragedy of commons in economics that occurs when individuals neglect the well-being of society in the pursuit of personal gains which leads to over-consumption and ultimately depletion of the common resource, to everybody’s loss. In such constructs, low punishments encourage overuse, while high punishments inflict pain on those who need such resources. However, a city in south-eastern Spain named, Mula proved to be an exception where self-governed communities managed to solve the collective action problem and lasted for a considerable long time.

The paper talks about a self-governing agricultural region – Mula, Spain. In this society, the community’s flexible justice system permitted farmers, who took turns as judges, to resolve conflicts over scarce resources with flexible punishments for water thefts. And the variable penalties for violating irrigation rules provided social insurance to farmers during droughts/natural shocks. Judges ordered farmers who stole for the first time or from the wealthy to pay small fines while meting out severe punishments to the repeat offenders, the wealthy, and the farmers who stole from the poor. This was a way of providing social insurance to poor farmers while deterring opportunistic farmers from taking advantage of this leniency.

Interestingly, this society developed a progressive justice system that efficiently accounted for an individual’s criminal history resulting in progressive punishments in contrast to the uniform mandates for harsh punishment. In this society, water, rather than the land was the scare factor of production and water rights in Mula were not attached to the land rights. Owners of water rights were wealthy while owners of land rights were poor. 97 per cent of farmers owned the land and 40% of these farmers owned water rights.

The justice system protected water and land property rights while offering social insurance to the farmers. Water was sold at the public auctions and the price equalled the marginal utility of water. All conflicts were brought before the farmers’ tribunals which resulted from water theft that was easy to detect by the monitors, paid guards or volunteer farmers. A financial incentive like a small share in the fine paid by the offender was a good reason that created such monitoring agents in this society.  

The tribunals were set up by farmers with equal rights and any individual, regardless of their water ownership, could sue or be sued at the tribunal court hearings. The members of the tribunal were elected for two-year terms with seven members at a time, four being elected on December 26 in odd years and three being elected on December 26 in even years.

Auctions were usually held when the dam held enough water that belonged to the water owners. Interestingly, this arrangement could’ve resulted in a monopolistic structure to maximize the profits by reducing the quantity available for sale or by holding on to the water until water demand is at its peak during droughts or other natural calamities. However, such possibilities did not make a cut considering the long term relationships of these water owners with farmers. By damaging farmers’ crops and trees, the sellers would reduce future water demand and increased the likelihood of conflicts that could be costly to the sellers. Additionally, it resulted in the least evaporation if water moved from dam to soil by allocation instead of lying in the dam. The auctions required cash payments which deterred the development of a credit-based market. Interestingly, an offender could take several weeks to pay the fine but during this period, he could nevertheless buy water at the auctions. This prioritization of irrigation over punishment suggested that the farmers and tribunal members saw water theft as a form of insurance.  

Conditional on rainfall, it was easy to identify an illegally flooded parcel when a farmer did not purchase water at the auction. The farmers who needed to irrigate their fruit trees but were left liquidity strapped because of nature shocks had only two options left to them: bid for water at Mula auctions, or steal from their neighbour’s irrigation ditches. With no money, the auction was not an exercisable option. Hence, a farmer was left to steal. But a harsh punishment would deter the farmers from stealing which would result in trees dying, while a mild punishment, by contrast, would allow these farmers to save their trees during natural shocks. Mild punishment would encourage a logical, rational and forward-looking farmer to steal whenever it was profitable, conditional on expected punishment. However, when a farmer stole, the option value of free stealing got lost. Losing this option value was a costly proposition for the farmer when in future; the farmer may need the water during times of severe natural calamity. Thus, losing the option value acted as a harsh punishment that deterred the commission of offences.

In the above arrangement, it may have also resulted in the other opportunistic farmers (either rich or not exposed to such negative shocks) to steal as well, but then punishing progressively to repeat offenders and wealthy deterred these opportunistic farmers from taking what they did not need. The paper also describes how mild formal punishments maintained low crime rates when informal punishments including shame, humiliation and social banishment were present. As a result, this system resulted in both small average fines and low offence rates. The example of Mula city demonstrated that with few trials every year relative to the hundreds of farmers who could potentially steal water every day, the progressive justice system deterred crime.

The paper delivers one important insight that the disadvantageous treatment of wealthy farmers was a consequence of efficiency which resulted from low punishment levels meted out to the aggrieved farmers. For the wealthy, their marginal utility of water was lower, the damage inflicted by their stealing was higher, and the marginal dis-utility of water they experienced from theft was lower. Allowing poor farmers to steal water during negative shocks helped them keep their crops and trees alive and their lives sustainable.

Hope you like the post. Full paper is available at: https://onlinelibrary.wiley.com/doi/epdf/10.1111/ehr.13047

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