How markets can end persistent intra-organizational conflict." The literature has described the origins and cost of intra-organizational conflict within the Southern California Metropolitan Water District (MET). War and the Austrian school: Ludwig von Mises and Friedrich von Hayek. The Austrian school of economics is generally considered an anti-war school. If crime is one of the causes, then suppressing crime should reduce the risk of conflict.
On the other hand, if people are altruistic towards their relatives, vicarious punishment can be more severe and preventative than simple, direct punishment of the perpetrator himself. Second, because of the close social bonding within an ethnic group, intra-group punishment may also be cheaper and more effective than individual punishment by outsiders. In contrast, it is probably more difficult and costly for outsiders to effectively contain individual wrongdoers because of the lack or weakness of social connection.
Applications of the internal police regime and the idea of collective punishment can be widely observed even in modern society where individual rights are highly respected. In a production team, for example, the individual performance of workers is often assessed in the context of the group. Given the risk of this shared blame, co-authors are motivated to discipline each other or blow the whistle.
Moore (1978, p. 104) reported: "Adultery between the villages sometimes degenerated into a war between the villages, when the unjust husband and his supporters killed a fellow villager of the adulteress in retaliation." The target of revenge is not the adulterer himself, but his fellow villager.
Intra-organizational conflict: Origin and cost
Because the non-Los Angeles member agencies of MET were unwilling to pay such a high price, property taxes for all member agencies were used to cover MET costs and subsidize water prices. PRs were included in MET's original charter as compensation for member agencies covering MET's costs. In turn, MWDs were attracted by MET's relatively cheap supplies of surface water and the guarantee of water for future growth, as proclaimed in MET's 1952 Laguna Declaration:.
Although it could be predicted that demand would outstrip supply, MET's Laguna statement was intended to alleviate precisely this concern. Members' votes on the Board of Directors were in proportion to their share of the assessed value of real estate within MET's service area. Agreement began to unravel in the 1960s and 1970s, when MET's supplies began to look less reliable and demand grew by leaps and bounds.
In MET's early years, the board acted as if it wanted to maximize profits in the MET area. MET could treat water as a club good, meaning that MET's allocation policies would be efficient because member agencies could get as much as they wanted. MET's water went from a club good to a common pool good: all members had access to it; but use depleted supplies for others.
Member agencies want to avoid this second type of dependency because it is difficult to find alternative water suppliers in MET's large service area. MET's member agencies lack a facility for trading water rights, which would be useful in reducing shortage costs. Commerce could use preferential rights (PRs) or some other system to share MET's limited water supplies among member agencies.
MET's structure as a co-operative with policies and costs applicable to all members meant that policies were debated. The gap between political and economic power widened because votes on the MET board continued to be allocated in proportion to assessed value (tax base) rather than to members who purchased a greater share of MET water (customer base). A recent attempt to sell water failed due to uncertainty about access to TGO infrastructure and transportation costs.15).
Joining' was voluntary; this is the MET term for "join": a new member signs up; existing members approve the application. A companion article to this case study explores potential changes to the TGO method for pricing and allocating water that would improve efficiency (taking into account scarcity) while maintaining equity (distribution of benefits and costs based on past actions and population weights).
How markets can end persistent intra- organizational conflict
A number of MET's member agencies are doing quite well with their costs and water supplies, which is why they don't want change. The end of abundant water and of subsidies left member agencies with an addiction to cheap water and growth that could no longer be met. Water managers at MET and member agencies are not paid for efficient water use or reliability.
Conflict over goals (cheap water or reliable water?) and policies that preferentially subsidize certain goals over others arise from heterogeneous preferences among MET's member agencies within its collaborative framework. There are two ways to solve this problem: First, change MET from a cooperative to a corporation with an independent Board of Directors or, second, change MET's method of allocating water and costs so that member preferences are irrelevant. Instead, one wants a system to allocate water, and the revenue from the sale of that water, to member agencies in relation to historical facts and customer statistics.
And second, member agencies will be entitled to a baseline amount of water (see below) that will be inexpensive and may be sufficient to meet all their needs. Auctions within MET will not have adverse impacts outside of MET's service area as they will simply reallocate water among MET member agencies.). MET's current system of PSP includes the cost of transport in the price of water, but these are not perfect complements, as transport capacity can be scarcer than water itself, a lesson we learn from traffic jams.12 With PSP, it is not difficult to see how a price that is right for water, but low for transport, can lead to transport shortages. While it is possible to allocate all of MET's water at auctions, it is also possible to set aside a baseline amount to each member agency based on the number of people each serves.
The academic literature on auctions goes into great detail about issues such as speed of allocation and maximization of revenue, but MET's structure as a cooperative (selling water to members who also split the auction revenue) means that these debates are not too important here. Revenue from water auctions is likely to exceed PSP revenue (any shortfall could be covered using MET's current property tax mechanism). Rebates may be implemented sequentially or simultaneously, depending on their relative importance to member agencies.
Barriers to reform can be circumvented by changing MET's water and cost-sharing method to another system that treats members fairly (in terms of their access to valuable water), rewards past sacrifices (tax payments and preferential rights), and restores MET's cooperative goal to a single goal: Selling a reliable water supply to the highest bidder. The reform is relatively easy to implement because it does not require major changes to MET's legal or operational structures. Zetland (2011) describes how LADWP subsidized MET's water rates and authorized MET's growth to stimulate demand because it received cheap hydropower from the Hoover Dam in return.
War and the Austrian School: Ludwig von Mises and Friedrich von Hayek
The value of the factors of production used in any class of goods, such as war goods, is compared with the value of the same factors used in the production of other goods. Mises believed that he stood against totalitarianism and believed that war – and especially the total wars of the 20th century – strengthened the state and collectivism. One virtue of the combined idea of limited war and free markets was the recognition that free trade was a necessary condition for peace.
These problems arise from the existence of what Mises calls the "interregional division of labor" (p. 829). Some of the ideas developed during this time would later appear as his primary thesis in The Fatal Conceit (1988). Botter: how is Britain mobilizing for a war against Germany without turning its economy into a reflection of the German economy.
Preemption, however, does not mean that rationing, quotas, or other market concerns are necessary. Hayek's The Economics of Planning (1941) reiterates the argument about the complexity of economics and the impossibility of any planner being able to manage the vast amounts of information needed to allocate resources. Rather, the shortcoming lies in political leadership and insufficient understanding of the functioning of the economy.
In his most famous work, The Road to Serfdom (1944), Hayek writes that planning is "the deliberate organization of the labor of society for a definite social end" (p. 56). English usage has simply reduced this to Mises and Hayek, and this convention is followed in the rest of the article. However, both saw that the social, political, and economic developments that accompanied the total wars of the twentieth century posed a threat to the liberal order they supported.
Society has arisen from the works of peace; the essence of society is peacemaking. But this will not change things, it will only prolong the process of the complete destruction of civilization in a short time." [1949, p. War and the Austrian School: Application of the Economics of the Founders." The journal Economics of Peace and Security.
