Regulation and Deregulation: Property Rights Allocation Issues in De Regulation of Common Pool Resources

Rights-based institutions have been adopted for certain natural resources in order to more effectively mitigate the losses of the common pool. Past central government (command and control) regulation has not proved satisfactory. In deregulation, a major issue has been the assignment of those rights and controversy over it has slowed the process. In this paper, I examine three different allocation rules: first-possession, lottery or uniform allocation, and auction and draw predic tions as to when they might be adopted and why they are controversial. I analyze the assignment and nature of the rights granted for common-pool resources where deregulation has occurred: oil and gas unit shares, emission permits, and selected fishery ITQ’s in six countries (Australia, Canada, Chile, Iceland, New Zealand, and the U.S). I find that firstpossession rules dominate where there are incumbent users. Lotteries and auctions are rarely used. I discuss criticisms of first-possession rules and argue that first-possession is likely more efficient than previously recognized. Accordingly, restrictions on such allocations as part of deregulation (rights set-asides for particular groups and exchange limitations) may be costly in the long run for addressing the problems of the common pool.

Water Rights and Markets in the US Semi-arid West: Efficiency and Equity Issues

There are both high resource and political costs in defining and enforcing property rights to water and in managing it with markets. In this paper, I examine these issues in the semi-arid U.S. West where many of the intensifying demand and supply problems regarding fresh water are playing out. I begin by illustrating the current state of water markets in 12 western U.S. states. There are major differences in water prices across uses (agriculture, urban, environmental) and these differences appear to persist, suggesting that water markets have not developed fully enough to narrow the gaps. Moreover, there is considerable difference in the extent and nature of water trading across the western states, suggesting that water values and transaction costs of trade vary considerably across jurisdictions. I then turn to the resource and political costs of defining water rights and expanding the use of markets. In this discussion, efficiency and equity objectives play important, often conflicting, roles. This tension reflects the very social nature of the water resource. To understand the problems of expanding water markets, it is critical to understand the varying political, bureaucratic, and administrative incentives involved

Open-Access Losses and Delay in the Assignment of Property Rights

Even though formal property rights are the theoretical response to open access involving natural and environmental resources, they typically are adopted late after considerable waste has been endured. Instead, the usual response in local, national, and international settings is to rely upon uniform rules and standards as a means of constraining behavior. While providing some relief, these do not close the externality and excessive exploitation along unregulated margins continues. As external costs and resource values rise, there finally is a resort to property rights of some type. Transfers and other concessions to address distributional concerns affect the ability of the rights arrangement to mitigate open-access losses. This paper outlines the reasons why this pattern exists and presents three empirical examples of overfishing, over extraction from oil and gas reservoirs, and excessive air pollution to illustrate the main points.

Water Rights and Markets in the U.S. Semi Arid West: Efficiency and Equity Issues

There are both high resource and political costs in defining and enforcing property rights to water and in managing it with markets. In this paper, I examine these issues in the semi-arid U.S. West where many of the intensifying demand and supply problems regarding fresh water are playing out. I begin by illustrating the current state of water markets in 12 western U.S. states. There are major differences in water prices across uses (agriculture, urban, environmental) and these differences appear to persist, suggesting that water markets have not developed fully enough to narrow the gaps. Moreover, there is considerable difference in the extent and nature of water trading across the western states, suggesting that water values and transaction costs of trade vary considerably across jurisdictions. I then turn to the resource and political costs of defining water rights and expanding the use of markets. In this discussion, efficiency and equity objectives play important, often conflicting, roles. This tension reflects the very social nature of the water resource.

State Regulation of Open-Access, Common-Pool Resources.

Open-access, common-pool resources, such as many fisheries, aquifers, oil pools, and the atmosphere, often require some type of regulation of private access and use to avoid wasteful exploitation. This paper summarizes the arguments and literature associated with this problem. The historical and contemporary record of open-access resources is not a happy one, and many of the problems persist, despite large aggregate gains from resolving them. The discussion here suggests why that is the case. The paper focuses on government responses to the common pool, the private and political negotiations underlying them, and the information and transaction costs that influence the design of property rights and regulatory policies. Understanding the type of institution that emerges and its effects on the commons depends upon identifying the key parties involved, their objectives, and their political influence. Further, it requires detailed analysis of the bargaining that occurs within and across groups. The paper summarizes the open-access problem and provides case analyses of regulation of common-pool fisheries, oil reservoirs, and the atmosphere. The final section summarizes the general themes and the advantages of the New Institutional Economics (NIE) approach to analyzing the common pool.

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

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.

The Assignment of Property Rights on the Western Frontier: Lessons for Contemporary Environmental and Resource Policy

In addressing environmental and natural resource problems, there is a move away from primary reliance upon centralized regulation toward assignment of property rights to mitigate the losses of open-access. I examine the assignment of private property rights during the 19th and early 20th centuries to five natural resources, mineral land, timberland, grazing and farm land, and water on federal government lands in the Far West. The region was richly endowed with natural resources, but assigning property rights to them required adaptation from established, eastern practices as defined by the federal land laws. The property rights that emerged and their long-term welfare effects provide a laboratory for examining current questions of institutional design to address over-fishing, excessive air pollution, and other natural resource and environmental problems. A major lesson is that property rights allocations based on local conditions, prior use, and unconstrained by outside government mandates were most effective in addressing not only the immediate threat of open-access, but in providing a longer-term basis for production, investment, and trade. Another lesson is how hard it is to repair initial faulty property allocations. Accordingly, path dependencies in property rules are real, and they have dominated the economic history of resource use in the West.

Institutional Path Dependence in Climate Adaptation: Coman’s “Some Unsettled Problems of Irrigation”

Katharine Coman’s “Some Unsettled Problems of Irrigation,” published in March 1911 in the first issue of the American Economic Review addressed issues of water supply, rights, and organization. These same issues have relevance today 100 years later in face of growing concern about the availability of fresh water worldwide as demand grows and as supplies become more uncertain due to the potential effects of climate change. The central point of this article is that appropriative water rights and irrigation districts that emerged in the American West in the late 19th and early 20th centuries in response to aridity to facilitate agricultural water delivery, use, and trade raise the transaction costs today of water markets. These markets are vital for smooth re-allocation of water to higher-valued uses elsewhere in the economy and for flexible response to greater hydrological uncertainty. This institutional path dependence illustrates how past arrangements to meet conditions of the time constrain contemporary economic opportunities. They cannot be easily significantly modified or replaced ex post.

The Costs of the Public Trust Doctrine in Environmental Protection and Natural Resource Conservation

We examine the costs of the public trust doctrine in environmental and natural resource protection and conservation. We provide a model of litigation and settlement among disputing parties where the doctrine is applied. The model suggests that use of the public trust doctrine is likely to introduce more costs and be more time consuming than would alternative approaches, such as the purchase of private rights through market transactions or application of eminent domain powers. Because the doctrine allows for uncompensated redistribution it is resisted by current resource owners. Further, by providing open standing to members of the “public” to challenge existing uses, public trust disputes encourage excessive demands and are more likely to go to trial than to be settled. This outcome is exacerbated if the plaintiffs are “zealots” and provide litigation services at below market cost, leading to greater investment in litigation. We present a case study of Mono Lake, part of the well-known 1983 litigation, National Audubon v. Superior Court to illustrate our arguments. We suggest that the costs of the public trust doctrine have limited its application.