A charcoal maker invited a house cleaner to live in his house to cut expenses. The cleaner declined because as quickly as he could clean anything it would get dirty again. Moral: Like people will work better together. – Aesop’s Fable of the Charcoal Burner and the Fuller.
Internalizing the externality: incorporating the negative spillover effects in the internal social structure of the spiller; un-internalized externalities lead to under-use or over-use.
It took some 6,000 years for persons to overcome slavery, serfdom, and oppressive rent and taxation to acquire secure property rights to farmland and to adjacent river water (riparian rights – see Joshua Getzler, A History of Water Rights and Common Law, ).
Enter Tim Stroshane, a former Berkeley central planner, activist and environmentalist, who proposes to abolish such property rights because farming monopolists in California allegedly fail to “share” water with the hordes of urbanites that want it. This post revisits Stroshane’s case in his 2016 book, Drought, Water Law and the Origins of California’s Central Valley Project (Reno: University of Nevada Press).
But there is such a thin spot market for water in California, amounting to only about 1 percent of all water used according to Ellen Hanak of the Public Policy Institute of California,  that the thesis of Stroshane’s above-cited book is a non-sequitur and straw-man argument. Because there is no significant market for water in California, market failure cannot be blamed for the inability to manage drought years, which in California are 4 out of every 5 years on average.
However, there is a substantial market for farmland and the water rights that run with title to the land. But Stroshane advocates separating water rights from land so that government can redistribute it. What would happen to California’s top ten agricultural counties when the property tax base collapses after water is uncoupled from land (a negative externality) is left unsaid by Stroshane.
That California’s recent, and cyclically recurring, drought was caused by outmoded water rights held by “monopolist” corporate farmers, as Stroshane asserts, is also refuted by the fact that farmers with “junior water rights”  fallow their fields during drought so that cities can have sufficient water supplies.
Nonetheless, Stroshane’s book is being heralded as a justification for reverting back to giving kings, land barons, potentates, greedy legislatures, and governors absolute rule to redistribute water by fiat, all in the name of combating the “monopoly” wasting of water by corporate farming. The focus of Stroshane’s book is on court decisions favoring the “monopoly” land holdings of millionaire’s Charles Lux and William Miller in California’s Central Valley from 100-years ago, the legal precedents of which remain today.
Moreover, Stroshane’s book also glaringly omits the coercive power that the California Environmental Quality Act (CEQA) has to compel the mitigation of impacts of the use of water in favor of third parties (bystanders).
Under CEQA, such third parties can claim to have “stakeholder” rights to water despite having “no skin in the game.”  Because they are not paying for California’s water infrastructure, they are rent seekers and free-riders (e.g., Indian tribes, environmentalists, commercial fishermen, the tourism industry, water-oriented real estate developers, and other constituencies mainly of the Democratic Party).
Stroshane is not the only voice advocating for a regulatory takeover of water rights in California and elsewhere. Vanessa Casado-Perez, a Spanish “inclusivist” legal scholar associated with the Stanford Law School and Center for the American West, in her new book The Role of Government in Water Markets (2016), advocates greater government regulation to correct the failures of (mostly fictional) water markets.
In short, the failure of water markets has become dogma in California’s universities and environmental think tanks and has even been embraced by left-libertarians. 
What these two books reflect is class warfare by the Knowledge Class in California, to grab power over water policy away from farmers and industry. A sociological marker of social class superiority by the Knowledge Class is antipathy toward the business and working classes .
Water Districts Internalize Externalities
A significant omission in Strohane’s book is any discussion of how water districts, not water markets or regulation, have overcome most of Strohane’s contentions that markets are inefficient and monopolistic and impose hidden costs or externalities on bystanders (see C. Carter Ruml, “The Coase Theorem and Western U.S. Appropriative Water Rights,” 2004, online).
There are 1,286 water districts in California (California Legislative Analyst’s Office) that provide water for between 35 percent and 50 percent of irrigated farm acreage and 90 percent of domestic users (see Barton H. Thompson, “Markets for Water,” William and Mary Environmental Law and Policy Review (2000), p. 267–68).
In one year alone, the 600,000-acre Westlands Water District is reported to have undertaken 4,500 internal trades of water in a state where official water transfers are so few and highly bureaucratic that there is effectively no water market in California.
Environmental clearances, neighbor-objection tests, threats of litigation, area-of-origin laws, and bureaucratic red tape embargo water markets. By definition, a free-market trade is not subject to bureaucratic red tape. Conversely, water districts are “mediating structures” or proxy market institutions that stand between farmers and cities and the large State Water Project, Federal Central Valley Project, and Federal Lower Colorado River system.
What California suffers from is not just cyclical drought, or monopolistic water markets, or lack of regulation, but enough intermediate institutions to deal with drought. For example, Stroshane omits any discussion of the behemoth Metropolitan Water District of Southern California and its partnership with the Palo Verde Irrigation District on the Colorado River to fallow farmland during drought in return for payment to farmers for their water (a project with which this reviewer was once involved). 
Another similar project began when the maverick-financier Bass Brothers from Republican Texas covertly bought up 45,000 acres of farms and water rights in California’s Imperial Valley in 2002. Eventually 104,000 acre-feet of water was “flipped” to the San Diego County Water Authority to secure their own independent source of water in an end-run around the Los Angeles Department of Water and Power and the Metropolitan Water District of Southern California.
Later, in 2006, San Diego was able to use the judicial system to bring about the lining of the concrete All American and Coachella Canals in Imperial County that saved 77,000-acre feet of water from ground seepage that was diverted to urban users.  This corrected the inefficiency and waste of Colorado River water from seepage that formed the massive Salton Sea,
California’s largest lake (and a dead sea) in the Southern California desert, the Salton Sea holds 6 million acre-feet of salty runoff water from agricultural irrigation and seepage from canals. Markets did not create such failure, as the Colorado River Aqueduct, All American and Coachella Canals are entirely government water conveyance systems completed in the FDR-New Deal era.
Contra Stroshane, farmers do share water with cities, not only those farmers with junior water rights in the Central Valley during droughts but those on the Colorado River. When a project comes along such as the Cadiz Water Project to harvest water from the Mojave Basin in the Southern California desert that would otherwise evaporate through dry lake beds, environmentalists do everything they can to block it. 
The above-cited examples reflect the moral of Aesop’s Fable of the Charcoal Maker and the Fuller cited above: if there are negative side-effects (called negative externalities) from government water projects such as seepage and waste (Salton Sea) or non-sharing of water by farmers with senior water rights (Central Valley), the best public policy would be to bring those with mutual, albeit opposing, interests together in a water district or some other mediating structure (such as the Palo Verde Irrigation District along the Colorado River and the urban Metropolitan Water District of Southern California).
Fomenting class warfare over water monopolization or failure of water conservation in California, as evinced by Stroshane, is a water fail policy.
This institutional approach to dealing with negative spillovers from (fictional) water markets has implications for the environmental regulation of electrical generation, air pollution, and industrial production.
For example, instead of the California Air Resources Board (CARB) imposing a cap-and-trade pseudo-market to sell air pollution permits (or impose carbon taxes) on industries and public utilities, it should decentralize and allow regional air pollution districts to better internalize any spillovers that a statewide entity can’t do. Lining up avaricious rent-seekers to benefit from taxes and pollution permit fees from cap-and-trade programs doesn’t allow for polluters or water wasters to eventually internalize their spillovers.
Stroshane is an occasional writer at the Journal of Capitalism, Nature and Socialism, where he advocates “reclaiming the commons.”  He is also a researcher and activist for the California Water Impact Network and Restore the Delta and has had his testimony entered into the Congressional Federal Register.
His prior career was as a housing planner for the City of Berkeley. His book is not social science, because he does not try to refute (falsify) his own hypothesis; if he did, his thesis would fail. Thus, Stroshane’s book requires critical review if for no other reason than he is an influential advocate for Northern California and environmental water interests whose work has unsurprisingly received nothing but uncritical praise by those whom he advocates for.
California needs more critical water policy analysis. Stroshane’s book, vulnerable to criticism, doesn’t hold water for the Golden State.
 David Igler, Industrial Cowboys: Miller & Lux and the Transformation of the Far West 1850 to 1920 (2001).
 Nicholas Taleb, “No Skin in the Game of Others”, http://www.fooledbyrandomness.com/skinofothers.pdf
 David Zetland, “Blame Outdated Rights for California’s Water Woes,” Learn Liberty-George Mason University, 2017. Zetland is from U.C. Davis.
 Peter L. Berger, The Capitalist Revolution: Fifty Propositions About Prosperity, Equality and Liberty (1986), p. 212.
 Terry L. Anderson and Peter J. Hill, The Not So Wild, Wild West:Property Rights on the Frontier (2004).
Nonsense on stilts.
City people can afford to pay more per cubic metre than farmers can pay per megalitre.
It’s not as simple as some people think, but run some numbers. How can 45.000 acres “flip” 104,000 acre feet of water rights in California? Don’t they get any evaporation in that part of the state?
More people should take more care with the water that falls on their property, but until they can prove they do, they aren’t worth listening to.
Re: “More people should take more care with the water that falls on their property, but until they can prove they do, they aren’t worth listening to” – Gnome
I make a living running numbers on the value of water companies, water rights and related values of land with and without water rights. So go preach to someone else about running numbers.
As for your comment that people should capture stormwater runoff in rain barrels or cisterns on their own property here are the NUMBERS:
Conservation: $545 to $787 per acre foot (potential supply: 6,600 to 12,000 acre-feet)
Local Surface Water: $209 to $1,650 per acre foot (potential supply: 148 to 2,164 acre-feet)
Recycled Water: $949 to $3,126 per acre foot (potential supply: 410 to 3,000 acre-feet)
Imported Water: $811 to $1,404 per acre foot (potential supply: 2.000 to 30,000 acre-feet)
Graywater: $5,947 per acre foot (potential supply: 807 acre-feet)
STORMWATER RUNOFF: $4,914 TO $46,080 (POTENTIAL SUPPLY: 32 TO 33 ACRE FEET)
Ocean Desalination: $2,650 per acre feet: (potential supply: 5,000 acre-feet)
Cost Range: $209 to $46,080 per acre feet (potential supply: 32 to 30,000 acre-feet)
Source: City of Pasadena, California Water Integrated Resource Plan 2011
Capturing rainwater in water barrels or cisterns is THE MOST EXPENSIVE option and YIELDS THE LEAST AMOUNT OF WATER for a city of 142,000 people in Southern California.
Moreover, capturing urban stormwater runoff from streets would be VERY EXPENSIVE because it is very dirty water that needs treated and there is no land available in built out Southern California to construct local reservoirs. Here are the costs per month per household for raw stormwater:
Raw Stormwater Project Costs Per Household Per Month:
$136.06 during drought for residential rain barrels ($6,531 per acre-foot);
$256.77 during drought for permeable pavement parking lots ($12,325 per acre-foot);
$722.40 during drought for residential rain gardens ($34,675 per acre-foot);
$747.44 for commercial parking lot swales ($35,877 per acre-foot);
$960 during drought for residential infiltration strip/bio-swales ($46,080 per acre-foot).
(see my article: “Stormwater Tax Drowns Voters” – Link: http://calwatchdog.com/2014/10/21/stormwater-tax-drowns-voters/
The above numbers are the cost for raw, untreated water and the cost for treated water would be much higher.
You apparently didn’t run any of your own numbers.
And yes the City of Los Angeles can afford to pay more per acre feet for water than farmers, which disproves your point. If there were an open and competitive market AT THE WHOLESALE LEVEL, Los Angeles would become the Saudi Arabia of water in California and by setting an enormously high price for water that would put farmers and small rural communities out of existence. Where markets could have the most impact is at the retail level (where water economists Rod Smith and Vernon Smith of Chapman University have developed a software model for such a local retail water market).
Moreover, as pointed out in the article, farmers transfer water all the time inside their own water districts in proxy markets. So it is the urban, coastal cities that are the water hogs and need market mechanisms to conserve water.
You don’t know what you are writing about.
This review suggests that you only read the opening and closing chapters, and perhaps Tim Stroshane’s bio because you missed big points in your review. Your attributions are incorrect. Mr. Stroshane does not offer any remedies for working through water rights and availability. His book is a history of water rights in the San Joaquin Valley, and the history of land monopoly documented in historical literature, as understood by the landowners themselves. His book in fact recognizes markets for water, but recognizes that there are problems that can contribute to the failure of water markets. Some of these failures are due to greed and human errors in judgement. You clearly missed Chapter 7 where Mr. Stroshane discusses Samuel Wheel’s point that the government could become a monopolist of water. I recommend that you take a weekend, make a pot of coffee, and read a bit more closely, without interruption.
Ms. Parilla, you should get off your high horse and first disclose to readers that you are the executive director of Restore the (Sacramento) Delta, which has employed Tim Stroshane as consultant (see Stroshane’s comments to the proposed Delta Plan prepared for Restore the Delta and the Environmental Justice Coalition for Water found online).
Secondly, I did not read selective portions of Stroshane’s book as you accuse. I have copious notes scribbled on each page of his book in pencil.
You did not respond to my challenge to Stroshane’s thesis (in his own words): “The political rejection of riparianism among public officials, water attorneys and the media was displaced from resentment, anger and anxieties about economic and social opportunities imposed by LAND MONOPOLY, and, in particular, the specific monopoly of the San Joaquin River imposed by (Henry) Miller and (Charles) Lux” (page 187).
A “monopoly” of land ownership can be overturned by anyone buying out the land, as did the Edward P. and Lee M. Bass, Texas venture capitalists, who in 1998 bought up land in Imperial County, California and traded their $60 million investment to US Filter Corporation, to sell water now set aside for the urban San Diego.
This is the same strategy used the Los Angeles Department of Water and Power when it quietly bought up land in Owens Valley by paying full market prices from willing sellers in the early 1900’s. The purchase of land and water rights later became the water resource for the Los Angeles Aqueduct. Gary Libecap in his book “Owen’s Valley Revisited: A Reassessment of the West’s First Great Water Transfer” destroys the myth that the land was acquired by illegal or nefarious non-market means. As Libecap documents there was no “theft” of water by the LADWP despite the myths created otherwise by the movie “Chinatown”.
Stroshane laments Milller and Lux’s perfection of “appropriative” water rights over riparian water rights holders allowed downstream users such as miners and farmers to “share” in the availability of waters held by upstream riparian owners. If it were not for Miller and Lux’s legal perfection of appropriative water rights the Sacramento Delta would still be an inland sea with massive periodic flooding that wiped out farms, towns and wildlife instead of the engineered system of dikes, weirs, diversion dams that allow downstream “freeriders”, who pay nothing to maintain the water system, to partake of the resources of that water.
There is nothing preventing Delta interested interested parties in buying up water resources the same as the Bass Brothers or LADWP, or as recently undertaken by the Metropolitan Water District of Southern California in the Delta. Restore the Delta wants to “appropriate” rights to water in the Delta without buying them or paying their share of the larger water system in the euphemistic name of “environmental justice”, using the mechanisms of the redistributive state (courts, legislatures) rather than markets. That is what CEQA (California Environmental Quality Act) does: it redistributes land or water or other resources to aggrieved third parties and pure bystanders who pay nothing into the water system but want their entitlement to those resources (e.g., Indian tribes, commercial fishermen, environmental organizations, eco-tourism interests, etc.). An analogy might be those with “pre-existing medical conditions” who refuse to buy health insurance but then demand access to medical services subsidized by those who paid insurance premiums.
Contra Stroshane, farmers do share their water rights and commitments with cities by junior water rights holders fallowing their land during declared droughts in the Central Valley and by the land fallowing project between the Palo Verde Irrigation District and the Metropolitan Water District of Southern California in Southern California.
Stroshane is fixated on law that occurred some 100 years ago and not on the workings of land markets and accompanying large water transfers that occurred afterward and continue to occur. His thesis – “Sharing a sustained water supply in a modern capitalist society is put off until another day” (page 201) is not sustainable in the face of the empirical evidence to the contrary.
In Chapter 6 Stroshane writes: “But monopoly of land and water was not the sole cause of market imperfection. The San Joaquin Valley’s experience showed that Nature is not uniform providing geography, resources and climate of equal benefit to all places”….By the first decade of the twentieth century , the California water market failed to meet the water rights claims of those who gained a foothold there” (p. 101).
In other words, Miller and Lux had what is called a “natural monopoly” by virtue of location of their properties. Natural monopolies arise when there are high startup or fixed costs of operating a business enterprise; or when they require unique raw materials to operate. Another facet of natural monopolies is that they can produce goods cheaper than the competition, especially when they have virtual monopoly without competition. The HEB grocery chain in Texas has withstood competition from out of state grocery companies like Kroger, Safeway and many California companies for decades but still dominate the state of Texas with lower prices, would be an example.
Moreover, there was no “water market failure” in the late 1800’s-early 1900’s in California because there mostly were no water markets; although there were markets for land with water resources. To this day, water markets in California are so thin (1% spot market of all water use) that there is effectively no market for water that has any substantial effect in lowering the cost or price of water not a part of any water market. Today California water markets have no “market power” to influence of control non-market prices or costs.
Stroshane writes on page 109: “Private companies were not as efficient or fair as people had hoped they would be. In the case of water serving San Francisco and Los Angeles, the cost of water was publicly believed to be excessive and Progressive-era movements to municipalize water supplies succeeded in those cities in the early twentieth century”. But Stroshane is talking about retail water, not wholesale water, where there were no water rights markets at all. Communities could join, say, the LA Dept. of Water and Power and annex into the City of LA or they could form their own suburb and municipalize their local water supplies by subsuming smaller mutual water companies. This is still being actively done around Lake Tahoe in California. So users had a public choice even if there were no effective water markets.
“Ancient” appropriative water rights that perpetuate so-called “monopolies” are not the cause of modern day water shortages because farmers allegedly refuse to share water with cities or the environment as Stroshane insinuates on page 201 of his book. Central Valley farmers have invested $2 billion of their own money in drip irrigation systems in recent years. Strohane begins and ends his book referring to recent purported “drought” allegedly due to farmers not sharing enough water. But there was no drought from 2012 to mid 2016, only a man made water shortage because government does not have enough water in reservoirs to last the 4 dry years/1 wet year hydrological cycle in California; and water conservation cannot respond without wiping out farmers with junior water rights (and some with senior water rights in 2016). This is “government failure”, not market failure.