Collective Action by Contract: Prior Appropriation and the Development of Irrigation in the Western United States

Bryan Leonard and Gary Libecap

No 22185, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze the economic determinants and effects of prior appropriation water rights that were voluntarily implemented across an immense area of the US West, abruptly replacing common-law riparian water rights. At the same time and place, vast private irrigation infrastructure added to the US capital stock. We build upon Ostrom and Gardner (1993) and model irrigation as a coordination problem to show how prior appropriation facilitated greater private infrastructure development than was possible under the baseline riparian system by i) securing access to water against future entry and ii) defining a property right that formed the basis for contracting around collective action problems among numerous, heterogeneous agents. We construct a dataset of 7,800 rights in Colorado, established between 1852 and 2013 including location, date, size, infrastructure investment, irrigated acreage, crops, topography, stream flow, soil quality, and precipitation to test the predictions of the model. We find that prior appropriation facilitated cooperation, doubling infrastructure investment and ultimately contributing between 3% and 21% of western state income in 1930. These outcomes are relative to the baseline alternative of a riparian system. The analysis reveals institutional innovation that informs our understanding of the development of property rights, prior appropriation, and contemporary water policy.

JEL-codes: K11 N51 N52 Q15 Q25 Q28 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-agr, nep-his, nep-ino and nep-pr~
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Published as Bryan Leonard & Gary D. Libecap, 2019. "Collective Action by Contract: Prior Appropriation and the Development of Irrigation in the Western United States," The Journal of Law and Economics, vol 62(1), pages 67-115.

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