The Relative Economic Merits of Alternative Water Rights

How natural resources are measured and bounded within a property rights structure can influence their development and productivity. This is especially true for surface water given its fluid, fungible, and stochastic nature. Two alternatives have emerged: The prior appropriation doctrine provides absolute quantities to water allocated based on first use while proportional water rights distribute a set percentage of total water to owners. While theoretical differences have been identified, empirical tests are lacking due to the endogenous choice of water rights. I identify and utilize a natural experiment where acequias (Hispanic-rooted irrigation ditches) developed in Territorial New Mexico are later divided by the formation of Colorado, exogenously forcing that subset to be subject to the priority system while those in New Mexico continue to practice proportional division today. Drawing on a broad collection of archival, administrative, satellite, hydrological, and survey data, I find priority rights provide greater certainty to earlier arrivals, inducing more investment, but that the marginal product of water is generally lower under that right structure. This research is pertinent to understanding how distinct property right systems may react to changing conditions and influence the development of newer resources, such as wind.