How the West Was Watered
Private Property and Collective Action
Originally published in Interdisciplinary Studies of the Market Order
The problem of natural resource management has traditionally been confronted with either “top-down” or “bottom-up” institutions to coordinate individual actions. Top-down institutions prescribe particular outcomes or impose restrictions on individual behavior with the goal of preventing socially costly behavior. Alternately, bottom-up solutions for resolving collective action problems include two broad categories of institutions: informal cultural institutions where norms guide behavior and market-based institutions built around formal property rights. This chapter focuses on how formal property rights can serve as basis for coordination and explores the conditions under which property rights are a more effective solution to collective action problems than either political or informal institutions by exploring the development of the prior appropriation doctrine—a novel first-possession system of allocating water in the American West. First possession rights to water emerged as de facto claims because they made exclusion possible in a setting where agents arrived at different points in time and where land ownership—the traditional margin of demarcation for water rights—was in flux. The formal legal recognition of appropriative water rights made exclusion possible and allowed a market for irrigation clubs to form, generating information to help determine the efficient scope and size of irrigation works and governance. First possession property rights to water served as a basis for collective action in a setting where state provision of public goods and local informal arrangements built on cultural norms were equally infeasible.