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Water Rights and Markets in the U.S. Semiarid West

Efficiency and Equity Issues

Gary D. Libecap

November 2011, English

In this paper, Gary D. Libecap explores water in the semiarid western United States-a region in which many of the intensifying demand and supply problems regarding fresh water are playing out-as a mixed private/public resource. The complex politics of water, as well as its physical characteristics, raise the resource and political costs of defining and enforcing property rights and complicate efforts to manage and allocate water in markets. Libecap finds major differences in water prices in 12 western U.S. states across agricultural, urban, and environmental uses.

The persistence of those differences suggests that water markets have not developed enough to narrow the gaps. Considerable differences in the extent and nature of water trading across the western states indicate that water values and transaction costs of trading vary considerably across jurisdictions. Libecap then examines the resource and political costs of defining water rights and expanding the use of markets. In this discussion, efficiency and equity objectives often conflict. Public and private water uses are often substantially intertwined, generating public interest claims that, although legitimate, are susceptible to abuse by special interests to weaken private property rights and the efficiency-enhancing incentives those rights provide.

This paper was presented at the Lincoln Institute’s conference entitled “Evolution of Property Rights Related to Land and Natural Resources” in 2010 and is Chapter 13 of the book Property in Land and Other Resources, edited by Daniel H. Cole and Elinor Ostrom.