@article{b8a90b1da6f94f658ee6e60b5218fed2,
title = "Legal Change and Water Market Transaction Costs in Colorado",
abstract = "Water markets are commonly described as failing to achieve efficient water management because of transaction cost barriers to trade. In the western United States, two sources of legal conflict frequently drive transaction costs: (1) negative externalities of trading and (2) uncertain property rights. Conflicts arise because water law applies a no-injury rule that prevents water transfers from modifying water available to third-party water rights and defines water rights by historical water use, among other reasons. Existing literature suggests many legal changes to reduce transaction costs, but no studies in the western United States quantify transaction costs under proposed future changes. Here we developed statistical models of transaction costs for water transfer proponents under four specific legal changes in the state of Colorado. Two legal changes would modify the no-injury rule, and two aim to clarify property rights. Colorado hosts active markets and has recently experienced debate over such legal changes. By surveying 100 legal and hydrologic experts, we elicited transaction cost estimates and rankings of which legal changes were most likely to increase third-party injury. The legal changes that aim to clarify property rights had significantly lower likelihoods of increasing injury. One of these legal changes, which would not limit transferable water to historical use in certain circumstances, also had the greatest reductions in proponents' transaction costs. Meanwhile, the legal changes that directly modify the no-injury rule project substantial transaction cost savings but much higher likelihoods of increased injury. The results demonstrate trade-offs between reducing transaction costs and increasing third-party effects.",
keywords = "Colorado water, transaction costs, water courts, water law, water markets, water rights",
author = "Philip Womble and Hanemann, {W. Michael}",
note = "Funding Information: We appreciate the assistance of D. Condren and N. Lee‐Ammons at the University of Colorado‐Boulder, who along with P.W. administered in‐person interviews for the survey. We also thank D. Condren for reviewing and cataloguing qualitative interview data. We thank the Colorado Water Congress, Colorado Bar Association's Water Law Section, Colorado chapter of the American Water Resources Association, Colorado Water Courts, and Colorado State Engineer's Office for distributing advertisements for the survey. We thank survey participants for donating time to participate. We thank J.T. Wood for providing early insight on water transfers in Colorado. We thank WestWater Research, LLC, for contributing data on Colorado water rights prices for the study. Data in the paper is available at https://doi.org/10.17605/OSF.IO/AFS26 , with the exception of the WestWater data on past water rights prices and transaction characteristics, which were acquired under a nondisclosure agreement. We thank B. Bovee and K.J. Quesnel for comments on the manuscript. We thank the anonymous reviewers, whose comments substantially improved this manuscript. Identifying data on interview subjects are withheld in compliance with Human Subjects Protocol. P.W. acknowledges funding from a Stanford University Interdisciplinary Graduate Fellowship, the Robert and Patricia Switzer Foundation, the Babbitt Center for Land and Water Policy at the Lincoln Institute of Land Policy, a W.C. and J.M. Landreth Fellowship and Grant, a McGee/Levorsen Research Grant, and a Sawtooth Software software grant. Any errors are ours. Funding Information: We appreciate the assistance of D. Condren and N. Lee-Ammons at the University of Colorado-Boulder, who along with P.W. administered in-person interviews for the survey. We also thank D. Condren for reviewing and cataloguing qualitative interview data. We thank the Colorado Water Congress, Colorado Bar Association's Water Law Section, Colorado chapter of the American Water Resources Association, Colorado Water Courts, and Colorado State Engineer's Office for distributing advertisements for the survey. We thank survey participants for donating time to participate. We thank J.T. Wood for providing early insight on water transfers in Colorado. We thank WestWater Research, LLC, for contributing data on Colorado water rights prices for the study. Data in the paper is available at https://doi.org/10.17605/OSF.IO/AFS26, with the exception of the WestWater data on past water rights prices and transaction characteristics, which were acquired under a nondisclosure agreement. We thank B. Bovee and K.J. Quesnel for comments on the manuscript. We thank the anonymous reviewers, whose comments substantially improved this manuscript. Identifying data on interview subjects are withheld in compliance with Human Subjects Protocol. P.W. acknowledges funding from a Stanford University Interdisciplinary Graduate Fellowship, the Robert and Patricia Switzer Foundation, the Babbitt Center for Land and Water Policy at the Lincoln Institute of Land Policy, a W.C. and J.M. Landreth Fellowship and Grant, a McGee/Levorsen Research Grant, and a Sawtooth Software software grant. Any errors are ours. Publisher Copyright: {\textcopyright}2020. American Geophysical Union. All Rights Reserved.",
year = "2020",
month = apr,
day = "1",
doi = "10.1029/2019WR025508",
language = "English (US)",
volume = "56",
journal = "Water Resources Research",
issn = "0043-1397",
publisher = "American Geophysical Union",
number = "4",
}