Transaction Costs and Institutional Change: An Analysis of Western Water Law Regarding Transfers from Agriculture to Urban and Environmental Uses

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Prop ID: 0317375 P I: Libecap, Gary D. Organization:National Bureau of Economic Research Inc Title: Transaction Costs and Institutional Change: An Analysis of Western Water Law Regarding Transfers from Agriculture to Urban and Environmental Uses CO-PI: Robert J. Glennan CO-PI: Alan Ker Institutional Affiliation: University of ArizonaThe water problem in the semi-arid American West requires a reallocation of water from agriculture to urban and environmental uses. The research question is whether water law and institutions facilitate the reallocation, or transfer, from historic uses to new uses. This project examines water transfers from agriculture to urban and environmental uses in western states to determine how water law affects the transaction costs of transfer. More specifically, it analyzes water law in 12 states by examining statutes, judicial opinions, and administrative rules across the states, and also Federal law, with respect to a list of factors that affect the transaction costs of transfer; by determining the relative importance of legal rules relative to economic variables in explaining differences in observed water transfers across the 12 states; and by determining whether water law has changed between 1980 and 2002 to facilitate transfers to allow water to flow to potentially higher-valued uses in the 12 states. Scientific Merit: The project adds to the body of scientific knowledge regarding the process of institutional change in the presence of high transaction costs. The research will contribute to the economics and legal literatures on transaction costs and institutional change, and it will be part of the resources literature on water. The project also adds to the body of scientific knowledge regarding the ways in which the legal structure in western states is or is not responding to pressure to reallocate a critical resource, water. Broader Impacts: Efficient use of water is a growing issue, not only in the semi-arid American west, but also more broadly, throughout the world where water supplies are increasingly limited relative to growing demand. The project will provide insights into the legal, economic, and political factors that inhibit the transfer of water to higher-valued uses with implications for economic development, growth, and welfare. Policy recommendations may be possible. Undergraduate and graduate students in economics, law, and resource economics will be centrally involved in the research, discussion, and analysis.