Water Infrastructure Investment in California and the Role of Mistrust

Property rights and the political-economic environment are critical considerations for policymakers seeking to develop or modify water policy.  These factors are, accordingly, critical considerations for economists wishing to study the policy process.  The complexities of hydrological systems, natural ecosystems, agricultural systems, and the factors determining industry and urban water demand are also important considerations which drive interest groups’ preferences. As a result, researchers applying predictive political economic models to specific policy problems face at least two difficult challenges. First, they have very limited information on which to assign parameters to the mappings from policies to outcomes to utilities. Second, they have very little basis for deciding which political economic model will adequately represent the political process in question. This paper applies tools of political economy to evaluate the viability of political alternatives in complex settings. Specifically, we model the ongoing debate over the future of California's Sacramento-San Joaquin Delta to assess the likelihood that any of several widely debated policy options will be politically viable.  We address the problem of limited information regarding parameters with the use of extensive Monte Carlo simulations over a broad parameter space. We address the problem of identifying the “correct” political economy framework by basing our assessments of the political viability of a potential solution on the fraction of our universe of parameter values as represented by our Monte Carlo simulations for which each option meets a relatively weak viability criterion, Pareto dominance, rather than imposing a specific game-theoretic solution concept. We first establish that certain alternatives would be “robustly politically viable” if all stakeholder groups trusted that these alternatives would be implemented in accordance with negotiated guidelines. We then incorporate institutional mistrust into our model and examine how the political viability of these alternatives changes as institutional mistrust increases. When institutional mistrust is high, none of the policy alternatives we consider are robustly politically viable.