Chinatown: Transaction Costs in Water Rights Exchanges. The Owens Valley Transfer to Los Angeles

Abstract

I re-examine the notorious Owens Valley water transfer to Los Angeles, which is a pivotal episode in the political economy of contemporary western water allocation. Negotiated between 1905 and 1935, it remains one of the largest voluntary water sales in U.S. history. It made the growth of semi-arid Los Angeles possible, increasing the city's water supply by over 4 times. Water rights were bundled with the land so that the Los Angeles Water Board had to purchase nearly 1,000 small farms. The negotiations between property owners and the agency were complicated. There often were lengthy disputes over farm characteristics, amounts of water conveyed, and valuation of both land and water. Bilateral monopoly emerged between sellers' pools and the Board. During bargaining impasses, the aqueduct was periodically dynamited. Today, the outcome of the Owens Valley water exchange is viewed as very one sided - one of theft by Los Angeles. As such, it discourages contemporary transfers of water from agricultural to urban areas. Using new qualitative and quantitative evidence, especially for 1924-34, when most water-bearing land was purchased, I examine the sources of bargaining conflicts, the timing of sales, the distribution of the gains from trade, and offer a new assessment of the results of the transfer. Implications for current water rights negotiations are drawn.