Water Marketing As a Tragedy of the Anticommons
Abstract: In much of the American West water shortages are becoming an increasingly important issue. With increasing demands for water for municipal, industrial, and environmental uses, it is clear that transfers of water from agricultural to other uses will produce economic gain. But water transfers out of agriculture are not occurring very rapidly. Most commodity markets respond rapidly to price differentials and market arbitrage reduces those differentials overtime. What is different about water markets in the American West and why have those differentials grown rather than decreased? In this paper we argue that it is the existence of multiple rights of exclusion, or the tragedy of the anticommons, that has impeded water transactions. We explain the tragedy of the anticommons and also describe the various rights of exclusion that exist. The paper concludes with a case study that illustrates the difficulty of water transfers.