DISCUSSION: Merits of the appropriation system; flexibility in
DR. WANTRUP: ... I should like to provoke a little discussion by
stating some inferences from my paper, which I left largely to the reader,
and which may not be so obvious to the non-economist.
One inference is that from the standpoint of economic analysis, appro-
priation comes out on top on all counts which are relevant.
I am, of course, aware of the criticism of appropriation which we have
heard here. Frankly, I am not too much impressed by it. I think in our
experience in the West, appropriation has proved remarkably adaptable,
has been a living entity. That is true, you may say, for riparianism, too.
But the development in ripariani m is toward appropriation. Whereas
appropriation is developing in a new direction.
In the future, appropriation, at least in the West, will be supplemented
to a considerable degree by some arrangements which are closer to
water-delivery contracts than to appropriation rights in the customary
sense. I say "supplemented" because it is not a substitution. These water
delivery contracts are executed between large public or semi-public
agencies, public districts, federal bureaus and others, which in turn have
their own established appropriative rights, according to customary inter-
pretation. But from the water allocation standpoint it is important that
the larger entities can influence water allocation, not via water rights but
via delivery contracts between them and the water users.
As those acquainted with the projects of the Bureau of Reclamation
know, that is an established policy. This is also true for many California
irrigation districts which have their own water development. The more
water supplies are man-made ani man-regulated, this supplement to ap-
propriation will loom large. I personally regard it as a perfectly accept-
able development, provided that the two criteria of security and flexibility
as discussed in my paper are met.
As I tried to show in my paper, the problem of water delivery con-
tracts is not so foreign to the appropriative right under conditions where
stream flow is fully regulated. If a stream system is fully regulated, then
the problem of physical uncertain ty, as I call it, tends to disappear and
the criterion of priority in time, which also is related to this problem of
physical uncertainty, becomes much less significant economically. So I
think that is a development whici is fairly smooth, which might at some
time be called by a new name, but as a matter of fact is already in exist-
The second inference: Conceptually, in the realm of economics, the
differences between East and West are not as large as they have appeared
here in discussion. We are all aware, of course, of the hydrologic differ-
ences between East and West. But I venture to suggest that the essential
issues in water development are not posed by hydrology or engineering
problems, but by changes in water demand.
LAW OF WATER ALLOCATION
I am not so sure whether the skepticism on the matter of the applica-
bility of the appropriation doctrine under eastern conditions is well
founded. I think, at least, that the hydrologic and physical differences be-
tween the two areas should not be overestimated in terms of the useful-
ness of economic and legal concepts. It certainly is somewhat misleading
when we say that the water problems move toward California, as it was
paraphrased here yesterday. I would say quite the contrary is true. The
water problems move from California east and their methods of solution
move with them. That is not a question of the intelligence of the Califor-
nians, but merely of historical development. You all know that the classi-
cal struggle between appropriation and riparianism has been fought out in
California and that the development of the correlative rights doctrine for
ground water has been pioneered in California. I also feel that the newer
conceptions of an integrated development of ground and surface water are
somewhat further advanced in California than they are in some other
states. It is more justified to say that problematical situations in water
move from west to east, and that western experience is quite relevant for
the eastern issues of the future.
The third inference: In terms of scientific understanding, the limiting
factors are not in the field of hydrology and engineering but in the realms
of economics, of law and of other social sciences.
The problem of ground water is a good example. We have had for dec-
ades whole libraries of excellent studies in ground water hydrology.
These studies were more or less buried, more or less locked up in the
files of the experts. Why is it that ground water hydrology receives so
much attention right now? Do you think it is better known than 20 years
ago? No, I think problems of demand have changed. In other words, eco-
nomic factors are forcing us now to pay more attention to some areas
which we had neglected, but which were well known to a small group of
Let us take Lea County in New Mexico, which we discussed yesterday.
There I think the hydrologic situation is fairly simple, certainly far
simpler than in some ground water basins that we have studied with some
detail in California, say the Santa Clara County, the Antelope Valley and
the Raymond Basin. The economic implications, however, in the Lea
County case are by no means simple. Assuming a 40- or 60-year deple-
tion period-mining of this area for 40 or 60 years-implies a host of eco-
nomic assumptions. I do not say that the order of the New Mexico State
Engineer is not perfectly sound. It might be the best economic alternative
to the area. What I am interested in is that other economic alternatives
should be studied. They may not be applied in this particular area, but I
think they are of great interest for other areas. I am glad that the Lea
County Basin is studied not only in the University of New Mexico, but also
under the Western Regional Project W42 by agricultural economists in
the New Mexico State College.
One could use other examples from surface water. Take our own "Paul
Bunyan" project, the California 1tate Master Water Plan. I think the
hydrologic and engineering aspects are not the limiting factors in its com-
pletion. The limiting factors are! in the realm of economics, law and
After these more general inferences on how some points in my paper
are related to the discussions in the previous sessions of this symposium,
I should like to return to the issues of flexibility in water rights.
The question of the market is not so simply disposed of as the Chair-
man suggests. I think in some areas the market for water has signifi-
cance. To be sure, the market structure and the market functioning are
quite different from other markets with which we economists usually deal.
But we cannot say that it does not have relevance for flexibility of water
rights, as I define that concept. We should on the other hand, realize that
the market is only one aspect of flexibility.
Are other aspects of flexibility quantitatively more important? We
actually know very little about this. I don't know of any study which even
approximately tries to state quantLtatively how water rights are trans-
ferred by various means. We know there are various forms of transfer.
How quantitatively important they are in the various states, we know very
little about. I think it would be a very interesting undertaking to study
this particular problem quantitatively. But even if the Chairman is cor-
rect in saying that the market is i important in the transfer of water
rights, we still are left with the fact that the appropriative right is better
suited for involuntary transfers than the riparian one, for various rea-
sons which I don't want to inflict dn you again. They have been set forth
in my paper.
The question was raised in one of our discussions whether the admin-
istrative agencies, which, as you know, are very important under appro-
priation, might not act as a brake on transfers. From my experience in
California, I would say no, or at least I would say that the statutory rem-
nants of riparianism, which still exist in California, are far more impor-
tant in preventing transfers of water rights than any administrative brakes
on the transfer of appropriative rights. These statutory brakes which
come from the remnants of riparianism operate especially when water is
exported from one watershed to another. I would say, on the question that
was raised here before, which of the two systems is better suited for
transfer, I would say without hesitation an appropriative right rather than
a riparian right.
There is one other point in this general area which I also stress in the
paper. It is not only the question of transferability of the individual right;
it is also a question of how many rights we will have to transfer to get a
relevant transfer in terms of water use. Under appropriation, it is often
perfectly sufficient to transfer voluntarily or involuntarily through con-
demnation one or two rights with high priority and not bother about the
LAW OF WATER ALLOCATION
others at all. Under riparianism it is frequently necessary to condemn
or otherwise transfer all the riparian rights on a stream system in order
to obtain a similar degree of security, in the defined sense, as we would
have under the appropriation doctrine. So then, not only in terms of
transferability of the individual rights, but also in terms of the need for
transfer of a number of rights, I think this superiority exists.
DISCUSSION: Physical versus economic water supply.
MR. GREGORY: Partly speaking as an economist, and from my knowl-
edge of the engineering profession, you say that the water use springs
from water demand. I would think the hydrologists would say, and have
said, that many problems spring from the physical problems of supply.
MR. WANTRUP: Aren't we a little bit mixed up there in identifying
supply of water with the hydrology of water?
MR. GREGORY: I think it is a little hard to separate the two.
MR. WANTRUP: Let me give a practical example. We have in Calif-
ornia about 71 million acre feet of runoff per year. We are using about
20 million. That 71 million acre feet of runoff should not be identified
with economic supply. How those 71 million acre feet are to be trans-
formed into economic supply, that is an economic question. When does
that question come up for such transformation? When is that question
I would say when demand has changed in such a way that it is neces-
sary to look at the hydrologic facts-which do not change-in terms of
supply which changes greatly in the course of economic development.
MR. GREGORY: The point I was trying to make was that the hydrolog-
ical facts of a case, although you say they do not change, they are of vital
importance to the economist.
MR. WANTRUP: They are of vital importance. I didn't say they were
unimportant. I did not intend in any way to minimize the importance of
hydrology. I said in terms of scientific understanding we know much more
in the area of hydrology than we know in the area of the social sciences.
So, if anything, you may turn it into a compliment to the physical scientist
rather than the opposite.
MR. TIMMONS: I think there is a refinement that should be placed on
this point under discussion now, concerning economic supply. I think you
are quite right in making a differentiation between the economic supply
and physical supply, that your economic supply is in part contingent upon
the cost of that supply as well as the price created by the demand.
MR. WANTRUP: I fully agree.
MR. TIMMONS: I think this is very crucial in this work, that as the
supply goes up, as the demand goes up with your supply constantly, that
then you see there is the possibility of satisfying an increasing increment
of that demand through lowering the price of your supply. There you are
directly into questions of technical possibilities, which may be desalting
water or whatever.
MR. WANTRUP: Yes. When I used demand there, I used it in a broad-
er sense than we usually use it in a supply and demand analysis. What I
meant there by demand was economic development. I would say that ap-
pears on both the demand side and the supply side.
DISCUSSION: The appropriation system: transferability of water rights
and the social welfare.
MR. HABER: I would like for you to elaborate a little more on the re-
lation between the appropriation system and social welfare, and what was
implicit in what you said the connection was between transferability and
MR. WANTRUP: That is a big order in an afternoon! As we all agree,
one of the distinctive features of the appropriation system is the priority
in terms of time. We have had quite a bit of discussion on that particular
point here. Quite a few of you spoke of the "freezing" element in this and
the repercussions on problems of social welfare. I am not too worried
about that. In fact, I think to start an allocation with priorities on the ba-
sis of time is just as good and better than most systems to start with,
provided we have flexibility.
May I give an example ? There are similarities with the Cartesian
system of coordinates: it does not make a great deal of difference where
we locate the point of origin, provided the functions which we are studying
are properly related to it and to the two axes.
I would say that even if we have made mistakes in some measure of
social welfare by starting with priorities in terms of time, allocating wa-
ter initially on the basis of priority, it does not make a great deal of dif-
ference, so long as we also have a system so that these various priorities
can move from one user to another, from one use to another, from one
region to another.
In other words, the drawback of arranging priorities on the basis of
time loses its economic significance if we have flexibility. And that is the
reason why I stressed flexibility so much, and worry less about priorities
in terms of time.
LAW OF WATER ALLOCATION
The whole principle of, popularly speaking, "first come, first served"
is, you may say, utterly uneconomic. I think as a starting point it is not
worse than any, provided we have a system where initial mistakes are
rectified, so that we have flexibility in the system.
MR. THOMAS: I wonder if I might cite an example and see if Profes-
sor Wantrup finds the flexibility he speaks of. The Geneva Steel Company
in Utah came in 1942 to a valley in which the water users were just about
unanimously agreed there was no more water. (As to the basis of that
[opinion], I don't know.)
Among the advantages they had when they purchased the land were 130-
odd wells, and rights to irrigation water from two of the canals. One of
the contingencies that they had when they went in was the agreement that
they would not diminish the inflow of water to Utah Lake which is below
them and which is a source of irrigation water in several places in the
Salt Lake Valley.
Well, as a result of their going in we have a 1-1/2 million-ton-capaci-
ty steel plant. It has water rights, and now there is a long enough period
to check to show that the flow of water into Utah Lake was not diminished.
So that industry has crowded into what was farming land and has not taken
any more water than the farming land had been taking prior to 1942. For
many years there has been more water going into Utah Lake from the
That was a case that I think would fit the conditions, a new user, a
large user and a change in use getting into this system and which is now
accepted. I don't think it would have been if it had not been for the war.
MR. WANTRUP: That touches upon the question of preferences. Dur-
ing the war, of course, in some way or other the steel plants had prefer-
ence. That was necessary.
Imagine a situation where we have a strong preference system in favor
of agriculture. It might have acted as a brake, and perfectly unnecessar-
ily so in this case. I also think your example is not an isolated one. For
example, in California, we have a strong tendency toward urbanization.
We are losing irrigated land to urban development. It is cheaper, [of
course,] to build on flat land. Such a substitution of urban for agricultural
development, by and large, does not increase water consumption per acre.
By re-using the effluents from the urban population, we may even save
some water. Among agricultural interests in California there is now a
hue and cry that we are losing land to urbanization. From the standpoint
of the water economist, and from the standpoint of the general economist,
for reasons which I don't need to explain right here, such a development
is not necessarily undesirable. In fact, it may tend to solve some of our
water problems rather than accentuate them.
DISCUSSION: Does flexibility of the appropriation system justify adoption
in the East?
MR. FISHER: I think this whole subject of a ... changing appropriation
system in the West should receive a great deal of attention from us, [and
that] we in the East should be careful not to model new legislation on a
western appropriation system that no longer exists in the West; that be-
fore we head in this direction we should get a more dynamic picture of
what you are heading for out there, [Of course,] ... in the East here we
are not really starting from the beginning. We have an existing system
which we are just beginning to get familiar with in some detail in these
papers. And if we are to change our system, change our laws, my question
is whether we can do better than the appropriation system as it is visible
to us in the West.
I think you did say the riparian system does seem to you to be heading
in the direction ... of the appropriation system?
MR. WANTRUP: I had in mind a licensing system-in the quantitative
limit on the license you have, to some extent, appropriation.
MR. FISHER: I am not sure you also said in which direction the ap-
propriation system is changing, but I wondered if it was working toward a
MR. WANTRUP: No. I think the appropriation system is changing. My
feeling is that the appropriation system will be supplemented by contrac-
tual arrangements between large public and semi-public agencies, such as
irrigation districts or water conservation districts, and the final user.
This, at least, is true if water is made available by large investments. If
you have a stream like the Mississippi or Missouri, then some of that wa-
ter, loosely speaking, is there by natural flow-you can "take it". It is
not man-made in the sense that we transport, let us say, the Feather Riv-
er or Trinity River 800 miles down to San Diego, or something of that
nature. That water is there by map and not by nature.
Coming back to the East, to the extent in the future that your water is
also man-made, a [firm] supply of water rather than [fluctuating] runoff
in your streams, I think you will by necessity come to a very similar situ-
ation, because to make water available, you need cooperation. You need
large entities which have the water rights and which through contracts
and "internal" regulations, so to speak, can influence the allocation of wa-
ter among users and uses. If you study the internal organization of irri-
gation districts, you find lots of instances where the allocation of water
is affected by the regulations of a district. In other words, it is not a new
development in the West.
My point is that if you come to that state of development, I think that
whatever legal system you are using, riparianism developed in the direc-
560 LAW OF WATER ALLOCATION
tion of appropriation, or an outright appropriative system, you will have
to supplement it by these types of contractual obligations between large
entities which develop the water and the individual who uses the water...
MR. THOMAS: I think most of you know that the appropriation system
has necessarily changed with development. Most of the earlier appropri-
ations were from unregulated streams, and this order-one, two, three,
four, by date and year-was a very essential item.
But I thought that of the most significant items in Professor Wantrup's
paper was the fact that rights are equated to a great extent when you get
regulation of flow. In a very great sense, that is true in the West now.
Many of our streams are regulated, and that has meant some bargaining
necessarily in a stream where there were rights to every possible flow
up to two or three times what the stream might do in the ordinary year.
But those flood rights were a part of the stream system of rights, and be-
fore the Bureau of Reclamation or any other entity could build a dam, it
was necessary to do some bargaining and see what those people [who had
such rights] would accept. Oftentimes those same people were people with
primary rights. It was not too difficult [a situation]. They could see when
the dam was there all those flood rights would not receive water, but
you would have more flow to supply perhaps three-quarters of the rights;
while under ordinary conditions [of unregulated flow] you had flood flows
during the flood runoff, then the dropoff, until by the first of September
very few people might be getting any water from the stream.
Ground water is another possibility there, and there again you have a
reservoir-regulation type of thing. The first person to put a well in is not
likely to have any substantially better right than the second person. But
there may be three or four thousand, all of whom could be pumping and
not exceed the capacity of that reservoir to produce, as there could be
three or four thousand rights in Lake Mead which would not exceed the
river's capacity to produce. That equating has become a subsequent de-
velopment and, of course, has made changes in the system. But I don't
know whether you call that a breakdown. It is just an evolution.
MR. HABER: I would like to pin down a few points, at the risk of mis-
interpreting your paper.
As I see it, one of the things that is being said here is that the way we
can achieve flexibility is by making rights easily transferable and then let
the market operate.
MR. WANTRUP: Not only the market.
MR. HABER: And the condemnation procedure-a combination of those.
And some system of regulation within a group organization.
MR. WANTRUP: Various other systems are mentioned. There are
other mechanisms which I think can be used besides the market and con-
MR. HABER: Yes, forfeiture mechanisms, and so on. But suppose we
take land instead of water-we let the market operate in order to produce
better economic use, and sometimes where the market can't achieve that
for various reasons, then we have certain public controls. In this case
forfeiture would be an analogue to some of the public control in land.
Under the riparian system, one of the things that is difficult is for the
market to operate at all because of this problem of having to purchase a
whole stream. And in condemnation, too, in order for a municipality, let
us say, to be sure of a definite amount of water, it would have to purchase
the riparian rights along a whole stream, very often, otherwise they can't
be sure that they are getting enough water at all times.
I am talking now purely about legal uncertainty and not physical uncer-
tainty in that respect.
That raises a certain important question to my mind, and that is the
question of the cost of regulation after the fact. In other words, this kind
of system should be compared with an alternative where you anticipate
development, anticipate change, so when the new demand occurs it doesn't
cost you quite as much to alter the pattern. That depends, of course, on
whether you can really with any degree of accuracy make such predictions.
If you can make such predictions about the extent of industrial demand, let
us say, along a particular stream within the next 20 years, then it might
be better from the point of view of the total picture not to allow large ir-
rigation investments that wouldn't pay off within 20 years, let us say, and
to reserve the water for these industrial developments, rather than to
grant the irrigators their rights, let them make large investments, and
then make them forfeit them, or later make the industry pay them the
market value for their water. One system may be more economical in the
end than the other. I see those two large alternatives.
The second point is the one that was raised by various speakers here:
if you start with something that approximates an appropriation system,
where you say everybody who is presently using the water has a right to
the amount of water he is now using, and then you allow all surplus water
to be appropriated by new users, you are cutting out the unused rights
Now the question arises, is that economically sound? What criteria of
economics do we apply to justify that, or criticize that? And secondly, if
we say we should not do it without compensation, that we should compen-
sate them, what should be the measure of compensation and how do you
justify this kind of compensation? Those are the specific issues that
would arise in the East.
MR. WANTRUP: These issues, of course, have arisen not only in wa-
ter but [with regard to other resources]. This morning, some speaker
very correctly pointed out that the expectation of use next year is differ-
ent only in degree from the expectation of use 10 years hence. We have
economic differentiations there, but conceptually they are not different.
Compensation for the loss of expected gain is not a new problem in law.
Such losses can be ascertained. In fact, in lawsuits, they are ascertained
all the time. So, I don't think that from the standpoint of the economist,
this problem of the unused right is such a great obstacle.
LAW OF WATER ALLOCATION
I would say in many cases, practically speaking-and these issues
should be viewed from their practical side-the present value of unused
rights in many cases approaches zero. I think we should not put this
problem of compensation for the unused right up as an insurmountable
DISCUSSION: Temporary permits.
MR. MARQUIS: What do you think are the pros and cons of an appro-
priative right, if it is to be granted for a limited period of years rather
than in perpetuity?
MR. WANTRUP: The problem of a temporary right, of course you
know better than I, is not a new thing. It is an inherent part of the appro-
priation system. Economically speaking, there is, I think, no objection to
it under certain conditions. I discussed this in the section "Protection of
Investment." A temporary right need not conflict with what I call econom-
ic security. That would depend on the type of compensation that is guar-
I think we have to have a sufficient incentive for the investor to make
the investment at the beginning of his water tenure. Whether that means
compensation for the value then existing at the end of the tenure-that is
largely a constitutional rather than an economic problem.
You see, as an economist, I am less interested in the constitutional as-
pect of that problem than in the incentive for the investment that is needed.
That may require a type of compensation, which in magnitude might not be
of the same order as the compensation which might be constitutionally re-
quired when the right is terminated.
There is another type of compensation which is necessary in terms of
equity of the whole social system, for which the law is more competent
than the economist.
MR. MARQUIS: If the right was only granted for a period of years, in
the first place, there is no, I take it, legal obligation to make compensa-
tion upon the termination?
MR. WANTRUP: There is a legal obligation under some statutes and
not under others. I would say there is always the economic question of
guarantee of compensation, up to a certain point, in order to induce the
MR. MARQUIS: For a sufficient term of years to make the investment
MR. WANTRUP: In my example of a 20-years' water right, an invest-
or might not be able to make that investment, if he knows he has a right
only for 20 years. In some other cases, he may perfectly well make the
investment. In extreme cases (we have short-term leases on certain ir-
rigated areas where it is perfectly clear that the whole arrangement is of
a short-term nature) the investment may be small or nil. Under such
conditions you don't need a compensation. These questions of compensa-
tion for separation of tenure are not greatly different in water tenure and
land tenure. There is a great amount of literature on the question of com-
pensation in land tenure, which would be quite interesting and relevant, I
think, for the question of water tenure.
MR. MARQUIS: You said that was not a new proposition. You mean,
the granting of rights-
MR. WANTRUP: Temporary rights. In California, for example, water
subject to reservations by a municipality is available for temporary ap-
propriation by others until the time when the municipality needs the water.