The capitalization of property rights to groundwater

Eric C. Edwards, Nathan Hendricks and Gabriel S. Sampson

American Journal of Agricultural Economics, 2025, vol. 107, issue 2, 390-410

Abstract: There is limited empirical evidence on the value of formal property rights to natural resources when they are not transferable, and there is regulatory uncertainty about enforcement. This paper takes a hedonic approach to understanding how three core features of groundwater property rights—access, allocation, and seniority—are capitalized into agricultural land values in the High Plains Aquifer region of Kansas. We find that groundwater access rights confer an average land value premium of 71%, or $1445/acre in 2019 dollars. Water rights having larger allocations and more seniority are more highly valued in the land market. The seniority effect is small but is consistent with more junior rights facing greater regulatory risk of curtailment. Taken together, these results suggest that the land market capitalizes constraints to groundwater pumping provided by groundwater property rights. We use our empirical estimates to quantify the distributional costs of modifying existing patterns of pumping, a common challenge of groundwater management organizations seeking to improve the sustainability of extraction.

Date: 2025
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https://doi.org/10.1111/ajae.12494

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Persistent link: https://EconPapers.repec.org/RePEc:wly:ajagec:v:107:y:2025:i:2:p:390-410

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