Property Rights and Water Transfers: Bargaining Among Multiple Stakeholders

Both developing and developed countries constantly face problems related to ill-defined property rights in common-pool resource systems. These problems are especially acute in water resource ecosystems. Anatural consequence of incomplete property rights is the substitution of market-determined exchange by negotiation-determined exchange. Water rights in the western region of the United States provide an excellent example. This paper is a case study of the negotiations over a water transfer from California's Imperial Valley to San Diego County in light of the transfer's impact on the inland Salton Sea. We analyze these negotiations as a multi-issue, multi-party, non-cooperative negotiating game. We construct stylized representations of the payoff functions for each party as well as of the physical, economic, and political constraints. To model the default outcome, we assign probabilities to various contingencies that might have arisen had the parties been unable to negotiate an agreement. We calibrate the model to the final agreement and then focus on the impact on the negotiated outcome of certain features of the institutional landscape: the influence of the allocation and specification of property rights; what would have happened if a producer group had negotiated directly with the urban stakeholder; the role of certain critical features of the Law of the River; and the impact of environmental regulations.