the Federal Trade Commission or any individual Commissioner.

Public Policy, and Water-Resource Depletion Imperfect property rights and government subsidies are pervasive sources of inef-ficiency in natural resource development. To alleviate central Arizona’s dependence on exhaustible groundwater, the federal government subsidized construction of the Central Arizona Project to import up to 1.287 million acre-feet of water per year from the Colorado River. In return for the subsidy, Arizona groundwater law was reformed to eliminate the common-property pumping of groundwater and to ban groundwater mining after the year 2025. We build a model of water resource development in which imported water is a capacity constrained backstop. The model is applied to Arizona’s water problem to quantify the welfare effects of alternative CAP construction dates and Arizona groundwater laws. We reach two general conclusions. First, properly timed, CAP would have in-creased social surplus by a modest $69 million compared to the situation where cen-tral Arizona had no access to Colorado River water and extracted its groundwate