The Value of Heterogeneous Property Rights and the Costs of Water Volatility

Daniel Brent

American Journal of Agricultural Economics, 2017, vol. 99, issue 1, 73-102

Abstract: The system of prior appropriation in the Western Unites States prioritizes property rights for water based on the establishment of beneficial use, creating a hierarchy where rights initiated first are more secure. I estimate the demand for security in water rights through their capitalization in agricultural property markets in the Yakima River Basin, a major watershed in Washington State. All water rights are satisfied in an average year, so the relative value of secure property rights is a function of water supply volatility and the costs of droughts are predominantly born by those with weak rights. In aggregate, security in water rights does not capitalize into property values at the irrigation district level; however, there is heterogeneity in the premium for secure water rights. The lack of a premium for district-level water security is robust to a variety of econometric methods to account for correlated district unobservables, and the null result produces an economically significant upper bound on the value to water security for the district. The ability for farmers to adapt to water supply volatility, as well as expectations about water markets and government infrastructure investment, are leading explanations for the lack of an aggregate premium. These explanations are supported by the pattern of heterogeneity in the water security premium.

Keywords: Water rights; hedonic valuation; water volatility; agricultural economics; Bayesian model averaging; boundary discontinuity (search for similar items in EconPapers)
JEL-codes: Q15 Q21 Q24 Q25 Q54 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (14)

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