Chinatown: Transaction Costs in Water Rights Exchanges. The Owens Valley Transfer to Los Angeles

ICER Working Paper Series No. 16-2005

41 Pages Posted: 28 Jul 2005

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: June 19, 2005

Abstract

I re-examine the notorious Owens Valley water transfer to Los Angeles, which is a pivotal episode in the political economy of contemporary western water allocation. Negotiated between 1905 and 1935, it remains one of the largest voluntary water sales in U.S. history. It made the growth of semi-arid Los Angeles possible, increasing the city's water supply by over 4 times. Water rights were bundled with the land so that the Los Angeles Water Board had to purchase nearly 1,000 small farms. The negotiations between property owners and the agency were complicated. There often were lengthy disputes over farm characteristics, amounts of water conveyed, and valuation of both land and water. Bilateral monopoly emerged between sellers' pools and the Board. During bargaining impasses, the aqueduct was periodically dynamited. Today, the outcome of the Owens Valley water exchange is viewed as very one sided - one of "theft" by Los Angeles. As such, it discourages contemporary transfers of water from agricultural to urban areas. Using new qualitative and quantitative evidence, especially for 1924-34, when most water-bearing land was purchased, I examine the sources of bargaining conflicts, the timing of sales, the distribution of the gains from trade, and offer a new assessment of the results of the transfer. Implications for current water rights negotiations are drawn.

Suggested Citation

Libecap, Gary D., Chinatown: Transaction Costs in Water Rights Exchanges. The Owens Valley Transfer to Los Angeles (June 19, 2005). ICER Working Paper Series No. 16-2005. Available at SSRN: https://ssrn.com/abstract=761764 or http://dx.doi.org/10.2139/ssrn.761764

Gary D. Libecap (Contact Author)

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