PERC reports - a great resource on property rights, resources, and the environment
One of their recent publications is Rescuing Water Markets:Lessons from Owens Valley By Gary D. Libecap. You can see a blurb about it here or download the pdf file here. Here is what it is about:
In the early 20th century, did Los Angeles really buy up a bunch of farm land in Eastern California with the express purpose of gaining access to the water from there? If so, was the Coase Theorem at work?
From his conclusion:
It's worth looking at.Owens Valley holds lessons for today. Given the booming cities in the semiarid West and the increased demands for water for wildlife and
the environment, there is no doubt that water will be reallocated away from agriculture. The question is how to facilitate those transfers in the smoothest, least-costly, and most timely manner.Water markets are an important option. But as the experience of Owens Valley shows, water markets do not develop seamlessly, even when the gains from trade are huge. Specifically, transaction costs stemming from valuation disputes, bilateral monopoly, and third-party effects can stymie trade.
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