Economic Theory and the Evolution of Water Law
Economic Theory and the Evolution of Water Law
Chapter 2 lays out the theoretical framework for understanding the economic approach to property rights and the determinants of changes in property rights over time. The discussion here begins by describing how economists view property rights for natural resources in general, and it develops the useful distinction between simple and complex resources, as determined by the number of relevant attributes. It then develops the important concepts of enforcement costs and measurement costs as important forms of transaction costs, and uses these concepts to describe how property rights may evolve over time. A simple model of water use and development within a river basin is then presented, which is used to derive specific implications regarding efficient allocations of surface water. Finally, a number of important concepts in tort law are presented and developed, especially liability rules, along with the transaction cost determinants of choice of rule.
Keywords: property rights, transaction costs, measurement costs, water rights, rent dissipation, tort law, liability, trespass, nuisance
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