Chinatown Revisited: Owens Valley and Los Angeles-Bargaining Costs and Fairness Perceptions of the First Major Water Rights Exchange

Posted: 22 Sep 2009

See all articles by Gary D. Libecap

Gary D. Libecap

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management; University of Arizona - Karl Eller Center; National Bureau of Economic Research (NBER); PERC - Property and Environment Research Center

Date Written: October 2009

Abstract

I examine a complicated bargaining problem in the acquisition of private land and water rights by Los Angeles in Owens Valley. This is a pivotal episode in the political economy of contemporary western water. More broadly, Owens Valley provides empirical evidence on how the gains from exchange were divided among the parties and how equity concerns shaped the process and succeeding assessment of market allocation. Negotiations for key properties took place within a bilateral monopoly context, and the bargaining strategies of both parties raised the transaction costs of exchange and formed fairness perceptions about the outcome of the exchange. I analyze the bargaining environment and estimate the determinants of when properties sold and the prices paid for land and water. Farmers who colluded did better by selling the properties than if they had remained in agriculture. Their “cartels,” however, were not strong enough to secure more of the surplus from reallocating water from agriculture to urban demand. Most of the gains went to Los Angeles landowners, and this is a source of the notion of water “theft” that continues today. (JEL D02, D23, D49, D74, K11, L13, N52, Q15, Q25)

Suggested Citation

Libecap, Gary D., Chinatown Revisited: Owens Valley and Los Angeles-Bargaining Costs and Fairness Perceptions of the First Major Water Rights Exchange (October 2009). The Journal of Law, Economics, & Organization, Vol. 25, Issue 2, pp. 311-338, 2009, Available at SSRN: https://ssrn.com/abstract=1476649 or http://dx.doi.org/10.1093/jleo/ewn006

Gary D. Libecap (Contact Author)

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

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HOME PAGE: http://www.esm.ucsb.edu/people/usernew.asp?user=glibecap

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HOME PAGE: http://www.bpa.arizona.edu/~libecap

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