Do Property Rights Alleviate the Problem of the Commons? Evidence from California Groundwater Rights
Property rights are widely prescribed for addressing the tragedy of the commons, yet causal evidence of their effectiveness remains elusive. This paper combines theory and empirics to produce a causal estimate of the net benefit of using property rights to manage groundwater. We develop a model of dynamic groundwater extraction to demonstrate how a spatial regression discontinuity design exploiting an incomplete property rights setting can recover a lower bound on the value of property rights. We apply this estimator to a major aquifer in water-stressed southern California, finding groundwater property rights led to substantial net benefits, as capitalized in land values. Heterogeneity analyses suggest that gains arise in part from the tradeability of property rights, enabling more efficient water use across sectors.
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Document Object Identifier (DOI): 10.3386/w26268