The Capitalization of Incomplete Property Rights to the Groundwater Commons

Abstract

Incomplete property rights are common across a range of natural resources such as fisheries and groundwater. The High Plains Aquifer region of Kansas provides one example of a complex but incomplete system of property rights. Rights to groundwater in Kansas are incomplete due to the physical characteristics of the resource, limited transferability between irrigators, and regulatory uncertainty. This paper takes a hedonic approach to understanding how three core features of prior appropriation water rights in Kansas—access, allocation, and seniority—confer value to irrigated farmland. All three water right features are priced into land values. Groundwater access rights confer an average land value premium of 71%, or $1,443/acre. Water rights having larger allocations and more seniority are more valued in the land market. The effect of seniority is consistent with more junior rights facing greater regulatory risk of curtailments. Our results indicate incomplete resource rights still confer value. Additionally, we use our empirical estimates to quantify the distributional costs of adopting modified groundwater governance regimes that ignore heterogeneity in allocation or seniority.

Keywords: groundwater, High Plains Aquifer, property rights, hedonic, seniority