Economics of Water Bottling

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The documentary Tapped exceedingly effectively presents bottled drinking water as the ‘poster child’ for the problem of externalities in economic discourse. Although the word has been around since the early 1800s, the identification and accurate measurement of effects of an economic activity that are external to the transaction itself or to the buyer and seller, has remained challenging.

In Tapped, we see the problems generated by the consumptive extraction of water by a commercial bottler. The ripple effects of this enterprise include the impact on local residents’ water and recreation, the health of distant drinkers of water stored in plastic bottles, the health of people living near the bottle manufacturing plants and the very health of the oceans (Soechtig). The solution or solutions will be challenging as well.

Bottling water empties an aquifer and does not replace or recharge it. In Fryeburg, this had the frightening effect of leaving the townspeople without water at times, including the nursing home (Soechtig). The externality in this instance – the expense of trucking in water or locating new wells – is borne neither by the bottler nor the distant customers (without legal intervention). It is not clear that this external expense could even be correctly estimated ahead of time.

In some instances, removing the water (whether municipally, agriculturally, or commercially) can create underground problems such as emptying lakes (Soechtig), causing ground subsidence (as in Florida and California) or the drawing in of pollutants from nearby polluted aquifers. The expenses of remediating such damage are huge and society has very few examples of successful restoration to a pristine condition, thus making it very difficult to price the cost of this externality.

The bottles themselves contain chemicals of dubious safety (Soechtig). The potential costs for ill effects on reproductive health, birth defects, or for cancer can mount up rapidly. Additionally, lifetime expenditures for a child with birth defects are very difficult to predict. This is another externality where pricing is challenging.

The manufacture of the bottles pollutes and causes health problems, concomitantly lowering the value of homes in large areas around the factories (Soechtig). While the economic cost of devastated home values might be calculable, the cost of human life remains a troublesome topic. Additionally, it is a puzzle to estimate the cost to families of being uprooted by an air/waterborne threat to their health.

Capping the cycle of waste is the improper bottle disposal. Instead of being recycled, they pollute all waters and endanger whole eco-systems, as noted in the movie (Soechtig). The potential cost of lost fisheries is calculable, but the interdependence of many poorly understood environments suggests some vital and expensive symbiosis could be overlooked.

A more subtle externality, aptly identified in the documentary, is the creation of a culture of disposability (Soechtig), illustrated by this anecdote. At a summer party, a teen stood next to several pitchers of beverages and urgently asked the hostess for a drink. Pointing out the various pitchers evoked no comprehension. Only when another mom pointed out a cooler full of pre-packaged juice boxes did the young person seem to recognize ‘something to drink’.

Are there any positive externalities in this particular market? It is very difficult to see any. The number of jobs created in Fryeburg is very small, and if the lake is damaged, the loss of tourism could be fatal to the town’s economy (Soechtig).

More importantly, how can these externalities of bottling water be dealt with? Should, or can, the negative externalities be prevented by legal action or by taxation or pricing to pay to repair the damage caused the activity? How might any of these solutions be implemented?

Proposed solutions have included

making the externality a criminal offense,
depending on people to bring law suits for damages,
having the government provide somehow to prevent the externality, and
imposing taxes that compensate the victims of the externality or repair the damage (Shavell).

None of them are uniformly appropriate.

Several special features of this problem make it a particularly difficult economic conundrum. The time frame of damage raises the stakes: It can take literally millennia for aquifer recharge. Few, if any, polluted groundwater sources have ever been fully remediated. Crucial information on the dangerous chemicals in water and bottling materials is selectively shared with the market (Soechtig), meaning that this is not a perfectly informed economic marketplace.

Criminalization would require that US laws be changed drastically, and consistently, at every jurisdictional level. The movie points out that the Nestle company carefully obtains all requisite permit (Soechtig)s. However, with the needed national political will, it could be done. It would require a great deal of scientific investigation to craft laws to prevent damage without cramping healthy development.

Tort actions, which are legal action taken against the firm or individual that caused the externality, are currently ruinously expensive, imposing a disproportionate and ultimately disastrous burden on individuals and non-profit-making municipalities (Maxwell). Unless the entire legal system were modified to ‘level the playing field’, this option disadvantages all but large corporations.

Municipal governments do, in many instances, provide or ensure safe drinking water. The particular nastiness of the water bottling issue is that consumers are being brainwashed into overconsumption (according to economists’ definition), thinking that the bottled stuff is somehow better, using half-truths and selective choice of scientific studies as tools (Zivin, Neidell and Schlenker) (Soechtig).

The most hopeful option seems to be the Pigouvian tax, (equivalent to the 1 cent bottle tax suggested for Nestle), which is imposed to help offset the ill effects of the externality (Shavell). This is theoretically able to ameliorate the market outcome.

The major problem with this solution is that it is not necessarily implemented such that the monies collected flow to the specific site or community or group that has been damaged. If monies so collected are put into a general fund, it can be difficult to access those funds when emergency water is needed, or the community’s water supply begins to deteriorate and require more aggressive treatment to become potable.

Although none of these is perfect, some solution is needed, since bottled water consumption is increasing (Zivin, Neidell and Schlenker). Nestle is only one among several companies trying to capitalize on the public’s credulity, fears, status aspirations, and selfishness.

For someone who has experienced both wonderful local water, and water of less than aesthetically appealing quality, the notion of making bottled water illegal is not appealing. It is a legitimate product, when used for, as the movie suggests, emergencies and special situations. However, otherwise, bottled water represents a non-product, a triumph of image and marketing over good economic self-interest. That is personal opinion before watching the video.

The hideous issues raised by the documentary Tapped only add to the conviction that bottling municipal water and selling it is an embarrassing miscarriage of classical liberalism. Some combination of the available policy responses (including Pigouvian taxes) may be helpful, but consumer avoidance of the product will speak loudly in the market as well.

Works Cited

Maxwell, Trevor. “Poland Spring wins Fryeburg battle.” 2010. The Portland Press Herald. Web.

Shavell, Steven. “The Corrective Tax versus Liability As Solutions to the Problem of Harmful Externalities.” 2010. Harvard University. Web.

Zivin, Joshua Graff, Matthew Neidell and Wolfram Schlenker. “Water Quality Violations and Avoidance Behavior: Evidence from Bottled Water Consumption: Working Paper No. 16695.” 2011. National Bureau of Economic Research. Web.

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Economics of Water Bottling

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