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

Abstract

"I explore the transaction costs that impede otherwise welfare-enhancing water rights transfers from low-value agriculture to high-value urban and environmental uses. Valuation disputes, bi-lateral monopoly conditions, and third-party effects are key factors. The study adds empirical content to basic transaction costs concepts. The focus is on the notorious Owens Valley water transfer to Los Angeles. Despite the fact that both groups of parties benefited from the transaction, the Owens Valley exchange serves today as a metaphor, cautioning any agricultural region against water sales to urban areas. Using new qualitative and quantitative evidence, especially for 1924-34, when most water-bearing land was purchased, I examine the bargaining between land and water rights owners and the Los Angeles Water Board to determine why it was so contentious and became so notorious. Implications for contemporary water rights negotiations are drawn."