The Relative Economic Merits of Alternative Water Rights

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"The prior appropriation doctrine adopted by all 17 Western US States, in which water users are provided absolute, private rights to water allocated in order of first diversion, has been lauded for its incentive structure for initial development but critiqued for subsequent inequalities in water use. By contrast, Hispanic settlers of the region adopted proportional water rights. I compare the performance of proportional water rights to the more prevalent private rights (prior appropriation) using theory and empirical evidence. I test the theoretical predictions using a natural experiment where acequias (Hispanic-rooted irrigation ditches) developed in Territorial New Mexico are later divided by the formation of Colorado, exogenously forcing that subset to be subject to the priority system while those in New Mexico continue to practice proportional division today. With 1930 irrigation organization data, I first test the implications on infrastructure investment, finding that indeed more investment has been made in Colorado and increases in seniority of rights. Then, using annual satellite imagery from 1984-2011, I compare performance under various stream flow conditions, finding that the marginal product of water is generally larger under the proportional system. Finally, using survey data from 2013 I explore how governance form and concerns of these Hispanic organizations have distinctly evolved given the presence of, or lack thereof, the prior appropriation doctrine."