The Coase Theorem and Western U.S. Appropriative Water Rights
Natural Resources Journal, Vol. 45, No. 1, February 2005
41 Pages Posted: 3 May 2004
The Article analyzes the prior appropriation system in the Western U.S. as a compelling application of the Coase Theorem. In the overall prior appropriation system, few statutory transfers occur, but there are thriving transfer markets in the smaller-scale context of water districts. This suggests that the system at large is not at Coase Equilibrium, but that Equilibrium does prevail inside the water institutions. Institutions facilitate low transaction costs and secure property rights, and catalyze an iterative process that tends toward Coase Equilibrium. The Article makes policy recommendations regarding the formation of larger-scale water institutions to reduce deadweight losses by expanding the scope of Coase Equilibrium within the prior appropriation system.
Keywords: Coase Theorem, prior appropriation, water rights, waste, abandonment, forfeiture, historical use requirement, rivers, water institutions, irrigation districts, American West, Ellickson, Thompson, Coase, Howe
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