Chinatown Revisited - Reason Foundation

The Property and Environment Research Center (PERC) has released an interesting paper detailing the ï¬rst large-scale, market-based exchange of water rights in the American West — the early 20th century transfers of water from California’s Owens Valley to the young and growing city of Los Angeles. The L.A.-Owens Valley water trades were extremely contentious at the time, with scorching negotiations between the city’s Water Board and rural landowners and even periodic violence. Movie buffs will certainly remember the Owens Valley trades as they were immortalized in the Jack Nicholson/Faye Dunaway classic, Chinatown. PERC revisits this interesting piece of history to separate fact from fiction and provide some lessons for the future:

“As efforts to trade water gain momentum in the twenty-ï¬rst century, it is appropriate to take a second look at Owens Valley. We will see that the impressions the public holds of the Owens Valley trades are caricatures of what really happened. On the other hand, we will ï¬nd that the diffculties that beset the negotiations were genuine and the animosity and frustrations real. They had their roots in problems that are likely to crop up again in natural resource negotiations, including the promising ï¬eld of marketing water to protect environmental values.”

The paper identifies three main obstacles to water marketing:

“[…] as the Owens Valley case makes clear, the development of instream flow trades will likely encounter the interrelated problems of valuation, bilateral monopoly, and third-party effects. These problems can reduce the ability of markets to accomplish welfare-improving water trades.”

Grab a bag of popcorn, and read the whole thing.