The Value of Clarifying Water Rights

Imagine you keep an old truck in your driveway. Sometimes when you want to use it, it’s gone – your neighbor has driven it somewhere. When you ask your neighbor to stop using your truck, he says it’s his truck too. Confused, you inform him you inherited the truck from your dad, but he says it came with the property when he bought his house. You resist any temptation to make physical threats and instead hire an expensive lawyer who slaps your neighbor with a lawsuit. To prove your ownership, the court requires you to put together detailed records of not only every time you’ve ever used your truck and how far you drove it, but also the same for your dad, going back all the way to when he bought it. If you’re missing any of this paperwork you might lose the truck. Even if you win the case, you still might sometimes catch your neighbor taking your truck for a spin in the middle of the night.

Sounds ridiculous, right? But this scenario is not too far off what water rights are like.

I was thinking about water rights recently because I saw some ads objecting to the Confederated Salish and Kootenai Tribes–Montana Water Compact. The CSKT Water Compact is an agreement between the Tribes, the State of Montana, and the federal government to settle disputes over water rights in and around the Flathead Indian Reservation in northwestern Montana. Essentially, the Tribes have given up most of their claims to water rights in exchange for more certainty around the ones they retain.

(The Compact was the product of bipartisan negotiation involving both Senators Daines and Tester. It was approved by both Trump and Biden administrations and ratified by Congress, the Montana Legislature, and the CSKT. It now must be adopted by the Montana Water Court, but while I’m not an expert in water law, it sounds like only some kind of extraordinary new information would be able to stop it at this point.) (Source: https://missoulian.com/news/local/ad-campaign-targets-cskt-water-compact/article_060372d3-52cf-5f65-9db2-97574753a55a.html)

I won’t go into the details of the Compact, but it’s a chance to explain why economists generally see efforts to clarify water rights as good for society overall – and why some people still oppose individual settlements.

The truck story shows just how much we take for granted the basic assumptions that underlie a well-functioning market economy. Ownership is clearly defined: when you buy a car, you register it with the country and receive a title. Property rights are reliably enforced: if someone steals your car, law enforcement officers will try to find it and return it to you. If there is ever a dispute, it gets settled by a fair justice system. Most importantly, the fact that we all have confidence in these institutions of government means that they are rarely needed: 99.99% of the time, everyone just accepts that your truck is yours, and my car is mine.

Water rights aren’t usually nearly as secure. This is partly because water itself is slippery: it’s a lot harder than a car to measure, store, and tell yours apart from other people’s. (Though one time my friend and I did accidentally get into someone else’s Toyota Camry because it was the same color as his, it was parked next to his, and his key worked on it!) But it’s also because across the West we haven’t invested in the kinds of record-keeping, monitoring, and enforcement systems that would be necessary to give water users the kind of certainty we take for granted when it comes to vehicles, houses, and land.

As a result, water resources are too often a chaotic mess of uncertainty, arguments, litigation, and political battles. Farms and ranches, developers, water utilities, and government agencies have to spend their time and energy thinking about water conflicts instead of focusing on the main things they care about. They have to pay water lawyers for years-long court battles. Worse, uncertainty can hamper investment and wise decisions about the future. If you aren’t sure whether you’re going to get the water you think you’re entitled to, you might not move forward with that purchase you’ve had your eye on.

All of this has real economic costs, and could be considered deadweight loss in economics terminology. So any efforts to resolve disputes, codify water rights, and reduce uncertainty can bring big benefits to everyone involved (and maybe the broader economy too). Since 1979, Montana has slowly conducting a statewide adjudication, in which water rights are formalized and recorded. One study found that a similar adjudication in Idaho, conducted between 1987 and 2014, increased the state’s agricultural output by $250 million per year. (Source: https://oliverrbrowne.com/Files/BrowneJi_SnakeRiverAdjudication_2021-06.pdf)

The CSKT Water Compact could be considered another piece of the effort to reduce deadweight loss around water rights. By quantifying and officially recognizing CSKT water rights and creating new streamlined procedures for resolving disputes, the hope is that the Compact will reduce future litigation and bring more certainty and predictability to all water users.

So why do some people still oppose settlements like the Compact? Probably because even if clarifying water rights and resolving ongoing disputes is efficient – meaning that it benefits society overall – it doesn’t mean that every individual water user benefits from it. There may be some water users who find themselves with lower-priority water rights than they had before. There also may be some users who did not in fact hold secure water rights but were holding out hope for a more favorable settlement – they actually preferred the uncertainty.

This is why policymaking is so hard – it’s rare to find a solution that makes everyone involved better off.