As the drought in Western states worsens, the agricultural sector is being criticized for failing to adopt technical responses, such as shifting to less water-demanding crops and state-of-the-art irrigation systems, in a timely manner. However, these responses can have the reverse effect: they can increase water consumption. Technological responses alone are insufficient to reduce water consumption if unaccompanied by changes in how the law defines and allocates water rights. This paper proposes a redefinition of water rights to ensure that changes in crops or irrigation techniques are socially efficient.

In the West, which uses the doctrine of prior appropriation to allocate water, rights are largely measured based on how much water is diverted from streams. As a consequence, technological responses only redistribute — not reduce — the total amount of water being consumed. Such redistribution is not necessarily systemically efficient. Take, for instance, a farmer who substitutes drip irrigation for furrow irrigation. While intended to reduce water use, drip irrigation results in more water being consumed by crops than traditional furrow irrigation, which returns unused water back to the stream. Farmers are reluctant to reduce diversion, since doing so would risk partially forfeiting their water rights. As a result, drip irrigation sharply reduces the return flow available for downstream users and the environment. Downstream water users may no longer be able to produce crops and the environment may be harmed if consumption upstream increases. This rebound effect from adopting technically efficient systems has not been adequately addressed in water law while it has been accounted for in energy policies. The Supreme Court case Montana v. Wyoming is used to illustrate this point.

This article advances a legal framework for ensuring that technical responses to drought accomplish the stated goal of reducing agricultural water use without harming third parties. In particular, it proposes prior consumption as an additional measure of water rights in prior appropriation regimes. Consumption more accurately reflects the true social cost of agricultural water use. This would prevent farmers from taking advantage of technical responses to increase their water use and would protect downstream users and the environment. In addition, water markets would benefit, since water rights would be better defined and the review process of water market transactions would be streamlined. The proposal is consistent with the underlying principles of prior appropriation, and the article explains why such a change would survive a potential takings challenge.