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Evolution of Water Marketing in California: Formal vs. Informal Property Rights


This dissertation tells the story of how users in California have come to reallocate their water through markets. I attempt to improve upon earlier work and explain what changed within water marketing as well as why things changed. Using regression analysis to analyze these changes is difficult because of the tremendous heterogeneity among users and because discrete changes in the laws do not correspond immediately to transfer activity. I use regression analysis in what follows, but understanding water marketing evolution necessitates case studies and a historical understanding as well. Therefore, I present a lot of history to place these recent changes in context, changes that many argue spurred recent market development. I discuss the different types of water transfers and present data on their trends and development, and then explain what changes mattered over time, bolstered by regressions using a fairly complete 30 year transfer dataset.

Underlying much of my work, and especially part II, is the notion that murky water rights in California affect water marketing. To show how water rights affect water markets, I explain how they are murky in California by focusing on the administration of water rights and the institutional structure in California, and then I show how these notions hinder markets. Furthermore, I contrast California with Wyoming, the originator of the Wyoming water right system upon which California's system is based. Despite their similarities on paper, Wyoming's water right institutions and administration are different, and these differences produce different outcomes. Lastly, I use groundwater basin data to understand how California's unregulated resource affects transferability of surface water.

Part I:

Starting in the late 1950s, economists argued that reallocation through water marketing would be a more efficient way to accommodate new water demands. However, water transfers have been essentially invisible until 1990. What explains this change, and what doesn't? This section reviews this history of water marketing and the major changes affecting water markets, providing a narrative for understanding how water has been reallocated in California through markets and by other means. This narrative highlights the continuity between early administrative decisions and the outcomes today, whereas previous research explaining recent water market trends emphasizes the importance of recent water market legislation (without comprehending the genesis of these changes). A careful analysis shows that many of the legal changes have little causal effect on California's water market. Using a more comprehensive and accurate dataset than in previous research, this paper also explains the trends in water marketing.

Part II:

In what ways does the water right system affect marketing? One way to understand how California's water right system affects marketing is to understand Wyoming's system. Both Wyoming and California have appropriative right systems, but the tenets of appropriative water law do not simply apply to California. I explain how Wyoming's system is much cleaner, and present some data to show that this has real effects on the ground. In addition, because California water marketing data only show who actually does participate in the market, transfers that fail are ignored. To grasp why transfers fail is as important in understanding why they develop, and I present examples of the numerous transfers that failed in California as a result of murky water rights. Finally, I use groundwater data to lend support to the contention that murky water rights hinder a district's ability to transfer water.

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