Draft for discussion
THE COJMEEVATION FOOU~ION
SYMPOSIUM ON TE LAW OF WATER ALLOCATION
IN THE EASTERN MITED STATES
Cosmos Club, Washington, D. C.
October 4-6, 1956
Concepts Used as Economic Criteria for a System
of Water Rights
S. V. Ciriacy-Wantrup
y C o^-v ^r
THE COMSEMRATION FOUDATIO~
30 East O4th Street
New York City
CONCEPTS USED AS ECONOMIC CRITERIA FOR A SYSTEM OF WATER RIGHTS
S. V. Ciriacy-Wantrup
University of California
Contents: 1. Economic Criteria "In" and "For" Water Law 2. Inter-
pretation of "Security" of Water Rights 3. Security of
Water Rights and Protection of Investment 4. Interpreta-
tion of "Flexibility" of Water Rights 5. Welfare Econom-
ics and Water Allocation 6. Economic Criteria and the
1. Economic Criteria "In" and "For" Water Law
Economic criteria are frequently implied in statutes concerned with water
law, in judicial creation of water law through decisions in individual cases of
controversy, and in administrative regulations by executive agencies--criteria
"in" water law.2/ Well-known examples are concepts like "reasonable" and "bene-
ficial" use, "waste," "surplus" of water, "maximum development," and "adequate
compensation." A semantic analysis, from the economic point of view, of these
and similar concepts would be interesting and useful. But this is not how I
propose to interpret my topic--or rather, an analysis of criteria "in" water law
appears to cover only one aspect of the assignment.
Economic criteria are also common in semipopular and technical discussions,
both in law and economics, when a system of water rights is considered as a
whole--criteria "for" water law. In this country, there are mainly three of
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1/ Giannini Foundation Paper No. Prepared for the Symposium on the Law
of Water Allocation in the Eastern United States, Cosmos Club, Washington, D. C.,
October 4-6, 1956.
The author wishes to acknowledge helpful comments on points of water law by
Wells A. Hutchins and Stephen C. Smith.
g/ "Water law" will be interpreted here broadly to include contributions by the
legislative, judicial, and executive branches of government,
these systems. First, in the eastern states, water rights are based on the
riparian doctrine--with modifications in some states as, for example, North
Carolina. Second, in the Great Basin and Mountain states, water rights are
based on appropriation. Third, around the fringes of this heartland of the
appropriation doctrine, the prevailing system of water rights is a "blend"
exhibiting features of both doctrines--although in secular perspective the
appropriation doctrine appears in the ascendency; this blend prevails in the
Pacific Coast and the High Plains states.
In appraising these systems of water rights, a dichotomy of criteria is
mainly used. One criterion is exemplified by a set of concepts such as "secu-
rity," "protection," and "rigidity" of water rights. The other criterion is
represented by concepts like "flexibility," "adaptibility," and "insecurity."
Anyone familiar with the literature cannot fail to become impressed by the
vagueness, plasticity, and contradiction which characterize the use of these
concepts. An examination of their economic meaning is needed.
This dichotomy of criteria is applied jointly. In examining its applica-
tion, one has to explore the gradations on the logical axis between the two
poles and the resulting compromise in institutional arrangements. But also,
one has to examine to what extent the two criteria can be applied together
without such a compromise.
The consequences of institutional arrangements, if viewed over time, are
complex. Applying a logical polarity to relations in reality does not always
give a perfect "fit." Although it frequently happens--examples will be given
below--that a change in institutional arrangements results in an increase in
terms of one criterion and a decrease in terms of the other, this does not always
happen. In other words, that the two criteria are poles logically does not
necessarily mean that a change in institutional arrangements cannot be con-
sidered that results in increases in terms of one criterion without changes
in terms of the other or that results in increases (decreases) in terms of
both. In this, and in other aspects, our dichotomy is similar to that of
"order" and "freedom" which has occupied students of jurisprudence for a long
time and is not being neglected by economists of quite different "schools."I/
The two criteria imply a problem area which is one of the most important
and difficult both for economic theory and policy. This is the problem area
of "economic change" and of "dynamics" versus "statics" in economic discourse.
This area is also the one in which tie relations between law and economics
raise some of the most acute and baffling issues/ Thus, focusing on these
two criteria brings us to the core of the main theme of this symposium.
Focusing on economic criteria used "for" water law does not mean that
economic criteria used "in" water law (referred to in the first paragraph) are
to be neglected. Both can be regarded as means of serving a common end--the
"public interest." The public interest is the concept that connects criteria
"for" with those "in" water law. Examining the economic meaning and implica-
tions of the former is not without relevance for the latter.
In examining concepts as criteria, the emphasis of this paper is on
functional relations in economics, not on legal history or on normative
----------------------- --------------rr r -- r----
1/ Commons John R., Institutional Economics (New York: The Macmillan
Knight, F. H., Freedom and Reform (New York: Harper and Brothers, 1947)
and The Economic Organization (New York: A. M. Kelley, 1951).
Bobbins, Lionel, "Freedom and Order," Economics and Public Policy
(Washington, D. C.: Brookings Institution, 1955). (Brookings Lectures, 1954.)
2/ See: Ciriacy-Wantrup, S. V., "Some Economic Issues in Water Rights,"
Journal of Farm Economics, vol. XXXII, no, 5, December, 1955, pp. 875-885.
meanings in law. The significance of the case law in this country is impres-
sive--especially to one, as the present writer, who grew up in the legal climate
of the Code Napoleon and its successors. But tracing historically the inter-
pretation of economic concepts through the maze of case law is more a task for
a student of law than for an economist. Likewise, it would be presumptuous
for an economist to suggest how economic concepts should be interpreted in law.
A great deal is being written lately on the "integration" of law and
economics. If by this term is meant that students in the two disciplines need
greater understanding for each other's problems, tools, and limitations, one
can wholeheartedly agree. If it is suggested by this term that concepts and
processes of concept formation employed by economists should be transplanted
to law (and vice versa), the prospective benefits would seem dubious. On the
other hand, emphasis on the functional relations of concepts used as economic
criteria "for" and "in" law may help in clarifying areas of common interest
between two social science disciplines.
The "functional relations" to be studied in this paper may be indicated
by two closely connected questions: First, one may ask, what are the economic
implications--in the sense of logical and probable factual consequences--if
concepts used as criteria "for" and "in" water law are interpreted and applied
in certain ways. Second, one may ask, how far and why are these implications
helpful or obstructive if certain economic objectives are sought. The economic
interpretations and objectives selected should, of course; have relevance for
actual problems of public water policy.
Although indicated by these questions, it may be well to point out explic-
itly at this time that the problem at hand will be viewed as one of positive
rather than normative economics.l The consequences of this approach for the
relations between economics and law will become apparent later (Section 6).
2. Interpretation of "Security" of Water Rights
To the economist, "security" of water rights means something different and
much broader than their "protection" means to the student of law. The latter
concept merely means protection against unlawful acts by others--as such acts
are construed by the law. Such protection is always subject to the two major
categories of "legal uncertainty," that is, to "rule uncertainty" and to "fact
uncertainty."2/ Legal uncertainty, in this sense, is a characteristic of judi-
cial decisions. Like other types of uncertainty, it also affects economic
Economists are inclined to disregard or underestimate the significance of
legal uncertainty. For them, security of a water right connotes (1) protection
against what I propose to call "physical uncertainty," that is, against vari-
ability over time of the quantity of water usable under the right due to seasonal
or annual variability of "natural" run-off and ground-water recharge, and (2) pro-
tection against what I shall call "uncertainty of water tenure"/ or, for short,
"tenure uncertainty," that is, protection against variability over time of the
quantity of water usable under the right due to lawful acts of others--who may
be individuals or groups, private or public.
1/ For a discussion of this differentiation see: Friedman, Milton, Essays in
Positive Economics (Chicago: University of Chicago Press, 1953).
2/ This terminology has been popularized by Frank. See: Frank, Jerome, The
Law and the Modern Mind (6th ed.; New York: Coward McCann, 1948).
3/ Tenure uncertainty is not confined to water--and other "fugitive" resources--
but is one of the most important economic forces affecting resource use. See:
Ciriacy-Wantrup, 8. V., "Capital Returns from Soil-Conservation Practices," Journal
of Farm Economics, vol. XXIX, no. 4, pt. 2, November, 1947, PP. 1181-1196.