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Conflict and Cooperation within an Organization. Edition No. 1
VDM Publishing House, April 2009, Pages: 180
The Metropolitan Water District of Southern
California (MET), a cooperative of retail and
wholesale water utilities, serves 18 million people.
This case study explains how MET -- as a cooperative
-- is inefficient and how its member agencies suffer
from this inefficiency. I show that MET is
inefficient by demonstrating that its members have
heterogeneous preferences over outcomes: Members that
are more dependent on MET prefer policies that
increase water supply; others prefer lower rates.
Although heterogeneity had existed since at least the
1940s, MET avoided conflict well into the 1970s. I
explore two possibilities for efficiency despite
heterogeneity. First, MET had so much water that it
could treat it as a club good, i.e., members did not
need to agree on policies over non-rival water.
Second, member agencies may have had social
preferences (one for all and all for one). Shrinking
subsidies and supplies in the 1960s changed water
from a club to private good. The end of social
preferences is not so obvious, so I asked MET's
member agency managers to participate in public goods
experiments. They do not appear to have social
preferences.
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