This report lays out a blueprint for transitioning to robust water rights, allocation, and management systems in the western United States—a blueprint ready for pilot testing in Nevada’s Diamond Valley and Humboldt Basin. If implemented, the blueprint’s reforms would convert prior appropriation water rights into systems that keep water withdrawals within sustainable limits, allow rapid adjustment to changing water supply conditions, generate diverse income streams, and improve environmental outcomes. The blueprint’s essential element is unbundling of existing water rights. In law and economics, property rights are often described as a bundle of sticks. When applied to a water right, unbundling involves separating an existing right into its specific, component parts. In an unbundled system, each part is defined and can be managed and traded separately. During the unbundling process, as proposed here, the value of each component is enhanced, and the taking of property rights is avoided. Unbundling brings clarity to water rights and reveals the true value of the water, because willing buyers and sellers are able to trade with one another with dramatically reduced transaction costs. “Liquid markets” emerge. Shares, a primary product of the unbundling, can be used to finance innovation, and opportunities for improving environmental outcomes are increased through the transparent value of water rights shares and allocations. If water managers in Nevada find that an unbundled water rights system is more desirable than the current system, they can use this report’s proposed reforms and schedules to facilitate the transition to it. Although the state engineer and governor’s office may have sufficient perquisites to proceed without the support of new legislation, implementation would be easier if underpinned by legislation.
Nicholas Institute for Environmental Policy Solutions