Summary on Browne and Ji (2023) - The Economic Value of Clarifying Property Rights.

This paper utilizes a novel reform in Idaho on water right to measure the economic value for water.

Background

Historically, the validity and priority of water use in Idaho is determined by judge on a case-by-case basis. When a conflict pops up, the involved parties would present their claims to a judge, who would determine the water right for each party. This approach often require significant legal expenses, since resolving disputes was costly and time-consuming. Over the past three decades, a more systematic approach to resolving water right disputes has been adopted in many states including Idaho. This process, called general basin adjudication, formally verifies the water rights of all users within a watershed. Courts comprehensively determine the validity and priority of each user’s water rights. This approach reduces dispute, and lowers transaction costs for transferring water rights.

Research question

The paper empirically investigates whether the benefits of water rights adjudication exceed the one-time cost of implementation, while also exploring how these benefits vary across different type of users, such as surface water and groundwater users. In addition, the study examines the channels through which adjudication generates economic gains, particularly focusing on its impact and land use decisions.

Identification strategy and concerns

The basic identification strategy applied in this paper is DID with two-way fixed effects. It also employs the doubly robust DID estimator to address potential issues arising from the staggered timing of treatment across different sub-basins, ensuring a more accurate estimation.

For the identification strategy to be valid, one sufficient but not necessary condition is that the adjudication on parcels are randomly assigned, so that self-selection issues can be precluded. This is essentially not applied to the real cases here, even if they claim that the basins are selected arbitrarily. However, the process of adjudication here helps to alleviate the issue of self-selection. The sub-basins were split into three contiguous groups and assigned three teams and collect adjudications sub-basin by sub-basin. This setup helps to alleviate concerns for self-selection issue, because individual water right holders have no control on the timing of their water rights being adjudicated.

Another concern is the economic structure change happened simultaneously during the adjudication. It is possible that some changes could affect directly on the major key independent variables that we care about. For example the booming of diary industry may lead to an increase in water demand and drives trade of water rights. And if some economic structure changes are correlated with the timing of adjudication, our estimates would be biased. Fixed effect helps to alleviate this concerns, as some structural change have the impact on all sub-basins that could be absorbed by the time fixed-effects. Checking the parallel assumption also works for addressing this concern.

In addition, they also checked the observable characteristics between groups of sub-basins. This action does not directly contribute to reduce the bias, since all observables can be controlled. However, it helps to argue that systematic differences between groups may not correlate with the timing of adjudication, which increases the credibility that the estimates are precise.

Findings

This paper eventually got the following findings. First, the find a 140% increase in water right trade due to the better-defined water rights after the new system. Second, water use intensity does not increase. And irrigators shift from low-value to high-value parcels, and efficiency has been improved. Last, they conclude the benefit of adjudication is far beyond the one-time cost of the implementation.