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).