Water is a slippery issue. You can pump water from the ground if you have your own well. It costs you the electric bill. As an owner of the lot, you have rights to the water swelling through the subterranean substrate.
The farmers who arrived first in the West have rights to the water in rivers through the first possession doctrine— a similar principle to land and mineral rights. Under this doctrine, historical patterns of water use give rise to de facto property rights. Specifically, whoever historically has diverted water and put it to beneficial use gains a legal right to continue diverting water for beneficial use in the future. Farmers diverted flows from rivers and streams through dams and irrigation ditch networks. Projects by the Bureau of Reclamation, part of the U.S.
Department of the Interior, augmented these systems and after 1926 would contract only with irrigation districts for water delivery. The fact that farmers have rights to and use vast quantities of water in an arid region is not a problem, in theory, if those water rights could then be traded to urban users who might value them more. But the history of water trading in the West offers a cautionary history about how difficult it can be, in practice, to facilitate true markets and arrange trades through property rights. (The West Needs Water Markets, but Achieving That is Tough, Peter Van Doren)
When you pay a water bill in an urban area to your local municipality, you are paying for the infrastructure to pipe the water to your home, as well as the water treatment process. Private property rights determine the type of access: well, municipal, irrigation ditches… The value of the water shows up as capital in the plot of land with access rights.
To obtain Owens Valley water for the aqueduct, the Los Angeles Water Board purchased over 800 farms and the water rights that came with them. Negotiations were difficult because of bilateral monopoly. The board was the only buyer and was under pressure to buy because Los Angeles was in a drought in the early 1920s. Large farmers formed pools to collude as sellers. Sellers wanted the surplus from the increased land values in Los Angeles arising from the water availability. The city’s board offered compensation based on agricultural revenue from the farms.
The LA people wanted to buy out agricultural land based on farm use. The farmers realized they were selling access to water. Thus they based their price on the value increase of the properties receiving their water rights in LA. This makes sense.
But then there can be no complaints when the agricultural land can no longer be farmed. The property’s use value transformed, and the transaction compensated the sellers at market value.
Home Economics 