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Unpublished Paper
Liquid Assets: A Coasian Economic Analysis of Oregon's Allocation of Conserved Water Program
  • Richard A Grisel

Diversions for residential, agricultural, recreational, commercial, industrial, and other beneficial uses have had the effect of removing water from rivers and tributaries throughout the western U.S. Another, more recent, competing use is ecological, demonstrated by the legal recognition of instream beneficial uses in some jurisdictions. As awareness of the progressively acute need for reallocation has increased in the arid West, so has interest in water markets and other mechanisms to facilitate transfers across beneficial uses. However, governments and water users face a legacy prior appropriation system that prohibits instream beneficial uses, encourages maximal diversion, stifles water right fungibility, and generally disincentivizes transfer and reallocation. There have been many responses to this condition, and this paper will focus on Oregon’s Allocation of Conserved Water Program (ACWP). ACWP is designed to allow users to conserve while retaining water rights, and transfer the saved amount to other users or dedicate it to instream uses. Unfortunately, while the program has some laudable features, it has not produced the intended results. This paper treats how a Coasian law and economics analysis applied to the key legal provisions of Oregon’s ACWP, juxtaposed to small-scale water institutions like irrigation districts (IDs), provides one fruitful account of why some reallocative mechanisms seem to be more successful than others. My thesis is that ACWP disincentivizes transfers by failing to sufficiently approximate the two “Coase Conditions:” significantly lowering transaction costs, and providing equal or greater security for the water right compared with the status quo. In the course of arguing for my thesis, this paper has two interrelated goals. First, I hope to provide one potentially illuminating way to understand water laws through the application of economic analysis, and to account for why some transfer mechanisms are more popular than others. And second, the methodology suggests that effective policy responses should be designed to approximate optimal Coase conditions and thereby maximize the chances of producing the behavior-related legislative goal of successful reallocative water rights markets.

  • water law,
  • law and economics,
  • Coase,
  • water markets,
  • prior appropriation
Publication Date
Spring April 22, 2013
Citation Information
Richard A Grisel. "Liquid Assets: A Coasian Economic Analysis of Oregon's Allocation of Conserved Water Program" (2013)
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