Transaction Costs and Property Rights in the Development of Western Water Law
By Randy Simmons
Irrigation is an art. Ask anyone who has plowed a ditch, set irrigation dams, used siphon tubes, changed sprinkler lines, laid drip line, or programmed center pivot systems. Farmers decide individually how best to practice that art depending on experience, terrain, soil type, elevation, available water, temperature, time of year, and type of crop. They skillfully manipulate the timing and amount of water to produce crops with a particular flavor and color and a high sugar or protein content. Farmers can make those decisions only after water is delivered to their fields by irrigation systems–dams, stream diversions, or wells. Water allocation systems and rules (institutions) determine who gets water when, how, and for how long.
This is a story of how water distribution systems and governing institutions affect the use and distribution of agricultural water in the western United States. In most western states, about 75% of the available water is used in agriculture, even though the marginal acre foot of water is often far more valuable in municipal or industrial uses. Transferring water rights from agriculture to urban uses is difficult and costly in time and money. The reason, I argue, is that the rules that successfully created property rights to water and reduced transaction costs for developing agricultural water delivery systems create very high transaction costs for moving water to different uses.