From Lawsuits to Solutions: Auctionomics Is Harnessing Efficient Market Design and Deep Tech for a Litigation-Free Solution to the Water Crisis

PALO ALTO, CA / ACCESSWIRE / June 15, 2023 / Research by the Intergovernmental Panel on Climate Change (IPCC) shows that climate change will impact two-fifths of the global population. The damning report puts water shortages at the heart of the climate crisis, establishing a direct correlation between water availability, population growth, and the resulting strain on food supplies.

The crisis is already here. Much of the Southwestern United States faces an impending water shortage, as two primary water reservoirs on the Colorado River near catastrophic lows.

Water Allocation is a Complex Challenge

Water allocation, especially concerning the Colorado River, is the archetypal wicked problem requiring a multi-stakeholder solution. Policymakers must reduce water consumption across the seven states that rely on the Colorado River.

This requires redistributing water rights between the states, across water districts, and among individual rights holders. However, fair allocation of rights to the water supply is a complex undertaking with far-reaching legal, hydrological, and economic consequences.

Despite states, policymakers, and users acknowledging that the Colorado River is overexploited, reaching a mutually satisfactory resolution has been challenging - so consensus and change remain elusive.

Further complicating this is the attitude of humans toward water rights and the region's historical rights hierarchy. States and users with the most ‘senior' water rights have the strongest legal standing, with many ‘junior' rights holders (including large Southwestern cities) forced to make deep cuts. Any top-down amendment would invite lengthy and expensive lawsuits, and time is short.

The Biden administration recently brokered an agreement to reduce consumption by 13% in California, Arizona, and Nevada. However, this is only a stopgap to temporarily stave off the worst ecological and economic disasters.

While these cuts (and the recent wet winter) should keep the Colorado River flowing for the next few years, they do not permanently fix the broken system of misallocated and overallocated water rights. The agreement applies through 2026, after which stakeholders must return to the drawing board.

Market Design Offers an Innovative Solution

A permanent solution must address and harmonize several components, including economic policy, the public narrative, and deep-tech science breakthroughs to add water back to the system. Any proposal that fails to adequately satisfy all stakeholders could expose the Biden administration to preventable lawsuits.

Market design, a specialized branch of economics that designs policies and algorithms to solve large-scale problems, offers the most feasible solution to this dilemma. Rather than risk lawsuits by disrupting existing hierarchies, market design creates new opportunities and incentivizes stakeholders instead.

This approach addresses the problem by creating new opportunities for voluntary trades. It carefully designs rights, specifying rules that define how and when they can be traded while protecting public interests.

Auctionomics Is at the Forefront of Market Design

At the heart of this innovative approach is Auctionomics, an agile team headed by two of the top industry experts in the world - Paul Milgrom and Silvia Console Battilana.

Paul won a Nobel Prize in Economics in 2020 for advancing market design and developing new auction formats. His 30-year-old theory enables mobile phone users across the globe to stream movies on the go today.

Italian-born Silvia, who is also CEO and co-founder of Auctionomics holds a Ph.D. and is one of few women leaders in a male-dominated industry. Silvia's journey began as a PhD student at Stanford, with a series of academic and departmental successes that paved the way for her to lead Auctonomics towards designing high-stake projects such as redesigning the entire Colombian gas market.

Today, she is a recognized expert in the allocation of scarce resources and has been invited to speak as a young global leader at the WEF (World Economic Forum) New York HQ for UN week. Apart from co-authoring editorial pieces on the World Economic Forum (WEF) blog with Paul and DCVC's managing partner, Zachary Bogue, she has also been named a WEF ‘Young Global Leader' and ‘European Young Leader', with lectures delivered at prestigious universities including Berkeley, Harvard, and Caltech.

From L - R: Paul Milgrom, Zachary Bogue, Silvia Console Battilana

Auctionomics wants to explore its full potential by applying its proprietary theories and practices to complex, multi-stakeholder allocation problems on behalf of public bodies and government organizations. The organization's prior experience designing incentive auctions puts it in a prime position to lead this effort. Furthermore, its partnership with DCVC (a climate change-focused deep-tech Silicon Valley VC firm) provides access to cutting-edge technologies crucial for analytics.

While groups like the UN and the World Economic Forum (WEF) are key to catalyzing concerted action, market design creates solutions that leverage the strengths of these international organizations, tech companies, and investors to allocate scarce resources to areas of greatest need.

Creating an Efficient and Fair Water Market

Earlier this year, Paul co-hosted a conference at Stanford University attended by a group of economists, lawyers, and water experts. The group developed a proposal for a novel policy to fix the Colorado River crisis: the U.S. should redefine and buy back existing water rights, just as it did for misallocated rights to radio airwaves.

Auctionomics led the development of the FCC's Broadband Incentive Auction, converting TV licenses to new valuable uses. The current issues with water rights are similar to those of the radio spectrum, where existing rights holders with solid legal standing were hesitant to change the status quo, despite the clear misallocation of resources.

However, Auctionomics successfully addressed the problem with its innovative auction design, facilitating next-generation telecommunications and raising $19.8 billion while safeguarding existing broadcasters.

The Colorado River proposal aims to address deficiencies in the current water rights allocation system. The existing system hinders mutually beneficial trades between users and prohibits water banking - a means to enable farmers or cities manage current water use more efficiently, leaving more in reservoirs for future dry periods.

While there are historical reasons for these limitations - the uses of river water are diverse, interconnected, and poorly measured. Modifying them can result in severe consequences in a system that guarantees inefficiency and overconsumption. However, the same model employed to redistribute broadband spectrum can incentivize water rights holders to use their water more efficiently.

Auctionomics aims to adapt this model to the Colorado River with practical steps involving a hydrological survey, voluntary redefinition of water rights, and purchasing enough new rights from willing sellers to meet the necessary reductions in total consumption.

These new rights incentivize users to conserve water, driving advancements in novel technologies that track water usage and minimize consumption. The partnership with DCVC deepens Auctionomics' access to the tech tools necessary to support this market and deliver its promise of fairness and efficiency.

Solving the Colorado River crisis won't be easy. However, the success in managing our airwaves provides a model for water rights that can improve efficiency, protect current users, and eliminate overconsumption before it's too late.

Media Contact

Veronica Cortez
+1 (650) 740-9859
Media@auctionomics.com

SOURCE: Auctionomics