Prior Appropriation Water RightsEEP 101/ECON 125 CHAPTER 16A David Zilberman Water NOTES SPRING 2002 TOPICS Water Use and Value Water around the World/Virtual Water Water Rights Systems Transitions from Water Rights to Water Markets Third Party Effects and Trading in Water Water Allocation over Space Collective Action and Water Districts Water Projects Ground Water as a Common Resource Conjunctive use of ground and surface water Irrigation Water Quality Water Use and Value We can distinguish between several benefits that may be provided by water resources. First, we should distinguish between consumptive use which includes, agricultural and industrial uses and non-consumptive uses. For example, in stream benefits associated with kayaking, fishing, and hydroelectric generation are non-consumptive uses of water. Water provides environmental benefits with some are consumptive as water feeds trees and supports wildlife. But mostly environmental benefits are non-consumptive uses. Some individuals may value the existence of bodies of water, say lakes or rivers, even though they don't necessarily visit or utilize them. But this existence value may motivate support for policies regarding water restoration and water resource conservation. The value of water depends on the use of the water, the location, the time, and the quality of the water. For example, during drought periods water may cost twenty times more than during wet years. In the same region you may have years where the price of water is zero, or even negative because of flooding, while in other years the price is extremely high because of drought. The value of water can be modified through projects that include storage facilities and conveyance facilities and through water management strategies. 1Water Around the World/Virtual Water There is significant dis-equality in the distribution of water across locations. Annual water availability in Canada, for example, is more than 5,000 M3, while annual water availability in Jordan is approximately 70 M3 per person. One approach to compare water situations across locations is to establish a certain minimum level of water per capita and consider locations with less water per capita to have water shortages. The determination of this minimum water level is according to the amount needed to produce food for an individual, as well as the amount needed for personal and per capita and industrial use. Some of the United Nations organizations consider 1,000 M3 to be the minimum requirement per capita, and using this measure, many parts of the world have water shortages. But, regions can survive and prosper with less than this minimal amount of water per capita if they are importing low value water consuming crops and exporting high value crops. By importing food you actually import virtual water, namely the water content that was needed to produce the food. To some extent, water shortage is not so much a physical problem but an economic problem. If a region can export its food it can overcome the shortage problem. Furthermore, in regions that border seas and oceans, one can produce any amount of water through desalinization, and in this case, again, water scarcity is really an economic problem. Water Rights Systems It's useful to distinguish between surface and ground water. Surface waters include lakes, rivers, etc. The allocation of water among users in many regions is according to systems of water rights. In many regions, water allocation has been based on queuing systems rather than on markets. Queuing systems are sets of laws defining property rights regarding who has priority to use water, when water may be used, how water may be used, and how much water may be used. Although queuing systems are still the norm throughout the world, and are going through change. A typical queuing system is a use-it-or-lose-it system of water property rights based on the principle “first come first serve." Queuing systems were established to encourage settlement of land and development of water resources. In early periods water was abundant, governments were poor and they wanted to encourage people to develop water resources so they gave individuals a right to the water that they divert, as long as they use it. Note, markets are the best allocation mechanisms when there is scarcity, but queuing can be very effective when scarcity doesn't exist. The 2biggest problem of water systems demands increase and suddenly scarcity emerges and in this situation water reforms are needed. Queuing systems are not efficient because they do not allocate water across users in such a way as to balance the marginal benefits and marginal costs of water use. Although it appears that a slow move toward market-oriented mechanisms is occurring, queuing systems are still the norm. We next discuss two queuing systems commonly found around the world. Riparian Water Rights (Developed in England) Areas adjacent to rivers, streams, and lakes are called riparian areas. Under common law, ownership of riparian land entitles the landowner to the use of the adjacent water on an “equal" standing with other riparian landowners. Each riparian landowner has the right to "reasonable use" of the water. A riparian landowner does not lose their riparian water right if they do not use the water. Under a system of Riparian Rights, individuals upstream hold rights to a “reasonable use” of water before individuals downstream receive rights. Priority of water use is thus not established among riparian users. Since water rights are not based on any economic criteria, the water does not “flow to the highest valued user." Under Riparian Water Rights, the common property problem may arise. This common property problem can lead to inefficiencies. Another source of inefficiency arises from the fact that, under Riparian Water Rights, water may not be diverted from the water body for use outside the watershed. The watershed of a lake, river or stream is defined as the area of land contributing water to the lake, river or stream. Hence, Riparian Water Rights cannot be traded freely. If trade cannot occur, inefficiencies can arise. For example, suppose agricultural land within a watershed is poor and land just outside the watershed is rich. Suppose: • Farmer A owns the land within the watershed and