Uncertainty and Technology Adoption with Imperfect Property Rights: Lessons from the Arkansas River Valley

Water resources in the arid west and other parts of the world are becomingly increasingly scarce as population growth and water quality impairment puts new demands on this limited resource. With those increasing demands comes an increasing urgency to conserve water and to consume the resource more efficiently throughout the myriad of uses. Indeed, much of the conservation pressure comes down to agriculture, as this sector is allocated as much as 80% of the water available in states like Colorado; water is often over-appropriated and yet population is projected to double by the year 2050. Complicating this resource management problem is a very complex institutional rights structure, which can vary from basin to basin. In this study, we use a dynamic programming approach to examine how agricultural producer technology adoption decisions with uncertain water supplies are influenced by existing water rights systems, including prior appropriation and the ubiquitous “Beneficial Use Doctrine.” We find that imperfect property rights and uncertainty over water availability decrease the incentive to adopt water-saving technology.