The relative economic merits of alternative water right systems

How natural resources are measured and bounded within a property right system can influence their development and productivity. This is especially true for surface water given its fluid, fungible, and stochastic nature. Two quantifications 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 scarce 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 compelling that subset to be subject to the priority system while those in New Mexico continue to practice proportional division. Drawing on a broad compilation of archival, administrative, satellite, hydrological, and survey data, I find priority rights curtail investment for later irrigators, but that the marginal product of water is generally lower under that right system. This research advances our understanding of how distinct property right systems affect resource development and use. The results can guide stakeholders devising or reforming rights to a resource, particularly ones with stochastic flows.