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Water Markets and Water Allocation. Wednesday, March 23. Property Rights in Water. Property rights in water determined by laws Most water use law is developed at the state level Water quality addressed by federal and state laws

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Water markets and water allocation

Water Markets and Water Allocation

Wednesday, March 23


Property rights in water
Property Rights in Water

  • Property rights in water determined by laws

  • Most water use law is developed at the state level

    • Water quality addressed by federal and state laws

  • Surface water and ground water are treated differently by state laws


Rights in surface water
Rights in Surface Water

  • Rights are provided for use of the water, not of the water itself

  • Riparian rights

    • Owners of riparian land have right to reasonable use of water

    • Earliest system of water rights in the U.S.

    • Most common in Eastern, “water-rich” states


Rights in surface water1
Rights in Surface Water

  • System of Prior Appropriation

    • system developed in arid regions of the western U.S.

    • “first in time, first in right”

  • Administration of appropriations

    • stream flows quantified

    • appropriations allotted based on stream flow

    • “use it or lose it”

    • Most junior rights-holder is first to lose rights during drought period


Rights in ground water
Rights in Ground Water

  • Owner of surface land rights has right to reasonable use of water withdrawn from her wells

  • Most states implement a permit system with withdrawal limits for any non-residential uses

  • Administrative agency assesses size of aquifer and recharge rate

    • May limit subsequent permits if aquifer is threatened


Transfer of water rights
Transfer of Water Rights

  • In general, riparian users cannot sell their water rights

  • In prior appropriation states, appropriations are generally returned to the state to re-issue to new junior rights- holders

  • Ability to transfer ground water rights depends upon state law

    • Most common is allowing transfer subject to limitations imposed by administrative agency


Determining water demand
Determining Water Demand

Irrigated crop

Total Product

Water ( ac. ft.)


Determining water demand1
Determining Water Demand

Irrigated crop

Marginal Product

Water ( ac. ft.)


Determining water demand2
Determining Water Demand

  • MPx

    • Additional production (Y) obtained from the use of one additional unit of input (X)

  • VMPx = MPx x PY

    • Value of one additional unit of input is equal to the additional amount of product obtained from that unit of input (MPx) times the value (price) of that product (P)

    • VMP = value of the marginal product


Determining water demand3
Determining Water Demand

$

How would a change in the price of the irrigated crop impact the demand for irrigation water?

VMPwater

= MB or Demand for water

Irrigation Water (acre feet)


Change in demand for irrigated crop will change derived demand for irrigation water
Change in demand for irrigated crop will change derived demand for irrigation water

$

S = MC

D

Irrigated Crop


Changing Water Demand demand for irrigation water

$

VMPwater

= MB or Demand for water

Irrigation Water (acre feet)


Demand for water in rural uses
Demand for water in rural uses demand for irrigation water

$

Dr

Water


Demand for water in urban uses
Demand for water in urban uses demand for irrigation water

$

Du

Water


$ demand for irrigation water

Dr

Urban water use

Rural water use

$

Du


$ demand for irrigation water

Dr

Urban water use

Rural water use

Efficient allocation of water: where MBr = MBu = P

(Assuming cost to each is the same)

$

P

Du

W*


Where MBr = MBu = P: demand for irrigation waterMNBr = MNBu

$

$

Du = MBu

Dr = MBr

MNBu

MNBr

W*

Urban water use

Rural water use


With water shortage, urban users will outbid rural users (MB demand for irrigation wateru > MBr)

$

Du

Dr

Ws

0

Water


What if rural users have prior rights? demand for irrigation water

$

$

Dr

Du

Wr,u

Urban water use

Rural water use


Gains to urban users demand for irrigation water

Gains to rural users

Rural users have prior right but can gain from trade

$

$

P

Dr

Du

Wr,u

Urban water use

Rural water use


What if urban users have prior rights? demand for irrigation water

$

$

Du

Dr

Wu,r

Urban water use

Rural water use


Gains to urban users demand for irrigation water

Gains to rural users

Urban users have prior right but can gain from trade

$

$

P

Du

Dr

Wu,r

Urban water use

Rural water use


Efficient allocation across time periods demand for irrigation water

$

$

MNB1

PV MNB2

W*

Water use in period 1

Water use in period 2


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