The Economic Benefits of Irrigation Districts under Prior Appropriation Doctrine: An Econometric Analysis of Agricultural Land‐Allocation Decisions

Abstract

AbstractThe economic literature has established that prior appropriation doctrine induces heterogeneity in risk among water users, which leads to an inefficient allocation of resources. In this study, we show that irrigation districts alleviate that risk by deviating from the strict application of prior appropriation doctrine. As a result, farmers inside irrigation districts are able to plant more water‐intensive crops than farmers outside irrigation districts, which increases average profitability. We empirically examine this hypothesis by leveraging a georeferenced panel data set at the spatial scale of the individual water right and spanning 2007–14 in Idaho's Eastern Snake River Plain. Our results indicate that on average, irrigation districts allocate larger portions of their land to drought‐sensitive, high‐value crops such as sugar beets and potatoes. As a result of differences in planting decisions, members of irrigation districts earn on average $16.20 per acre, or 6.0% more per year than those outside of irrigation districts.