Perhaps Coon Rapids should invite Ronald Coase to visit. The 1991 Nobel laureate might be able to help resolve a dispute about the Mississippi River dam there.
Coase’s insights on the importance of property rights could illuminate an evolving argument about spending public money to maintain usual water levels during repairs to the dam. And while Coase focused on economic efficiency, his ideas also might force local residents to think about what’s fair.
The dam, now approaching its century mark, served as a hydroelectric plant until about 40 years ago. Since then, it has belonged to Three Rivers Parks — formerly the Hennepin County Park system — and is the focus of recreational facilities for both Hennepin and Anoka counties. Since it was built, the dam has created a wide, flat pool that extends several miles upriver from the dam.
Over the decades, many families built houses along this stretch of the river. They have docks and swimming areas and understandably would like water levels to stay where they’ve been.
Unfortunately, the dam requires urgent repairs to undermined foundations. The cheapest approach is to drain the water from the pool for the 12 weeks that the repairs may take. A temporary cofferdam could keep river levels up during repairs, but that would add $400,000 or more to the cost of the project. The park system understandably does not want to spend more on repairs than necessary.
Coase examined such situations where two parties have opposing interests. He found it crucial that property rights be well-defined. Do the affected homeowners have a clear right to perpetually maintained water levels? Or does the dam owner have a right to drain the dam as necessary for periodic repairs or maintenance?
If the affected owners have a right to unvarying water levels, then the dam owner could pay compensation for permission to drain the pool. If the dam owner has the right to drain, then homeowners could pay the extra expense of the cofferdam. Either solution, according to Coase, would be economically efficient — even though people might argue about fairness.
Economists would want to know the value to society of keeping water levels up through the summer. One approach to estimating benefits would be to ascertain how much homeowners would be willing to pay — if they had no other recourse — to not have the pool drained. In other words, what would it be worth to them to keep things as they were?
If that willingness to pay exceeded the cost of the cofferdam, then the socially efficient solution probably would be to build it, regardless of who actually paid the bill. The word “probably” applies because perhaps some compromise measure might satisfy both parties that would cost less than the temporary dam.
If the property-rights definition is clear, Coase would argue, then one party or the other would have clear incentives to identify such a lower-cost compromise.
Most people do, of course, care about the fairness of the outcome. The homeowners think it unfair that they be deprived of a normal recreation season. In this time of tight government budgets, Hennepin County taxpayers may care about spending an extra $400,000. That’s the kind of sum Bullwinkle the Moose described as “antihistamine money — it ain’t nothing to sneeze at.”
If a reported 500 property owners are affected to some degree, spending $400,000 to maintain water levels works out to $800 each for the season or about $67 each for every week of usual levels. That is a big welfare payment, especially since people with homes on the Mississippi usually are not among the poorest and most downtrodden of society. Many citizens will find it hard to justify spending that much to benefit a small group while programs for much poorer people are being cut.
One complication is that homeowners upriver from the dam are not the only people hurt by lower water levels. Boaters, anglers and other park users on both banks will find a drained pool less satisfying than a full one. A cost-benefit analysis would necessarily consider their willingness to contribute part of the cost of building the cofferdam.
This trade-off is internal on the Hennepin side where the parks department must weigh the savings of simply draining the dam against the loss of recreational benefits to county residents.
Anoka County and the city of Coon Rapids face different incentives. They face neither the costs of dam repairs nor of maintaining water levels. Like private homeowners, they prefer the water levels they’ve become accustomed to, at no extra expense.
Unfortunately, past public officials did not follow Coase’s advice and the property rights are particularly murky. Both sides can claim some legal precedent for their position.
When the law is murky, questions eventually get settled via legal blustering, lobbying and other political processes. The outcome is seldom cheap or efficient for society.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.