Institutional Adaptation to Water Scarcity in Utah Irrigation Companies

A review of how water institutions in the American West have changed in response to arid conditions as a means of examining the possibility of further change as an adaptation to climate change induced water scarcity. Two institutions are examined, prior appropriation and shares. While much of the American West operates under prior appropriation formally, irrigators have found Coasian methods of lowering transaction costs by forming irrigation companies. Irrigation companies own appropriative rights and redefine them, typically as shares. Lower transaction costs allow irrigators to trade more freely within companies, though trades between companies still face high transaction costs. Using a dataset of Utah’s 1100+ irrigation companies collected from the Utah Division of Water Rights, I measure the extent to which these companies have internalized transaction costs. Because most, if not all, irrigation companies transform appropriative rights into some form of shares, regions facing more water scarcity should be more likely to manage water by using shares rather than appropriative rights. I test the hypothesis that an increase in water scarcity makes trade more valuable and thereby increases the relative opportunity costs of managing a river through appropriative rights versus shares