Chinatown: Owens Valley and Western Water Reallocation—Getting the Record Straight and What It Means for Water Markets
Gary Libecap | June 1st, 2005
In this Article I examine the notorious Owens Valley water transfer to Los Angeles. Not only was it one of the largest private water exchanges in U.S. history, but it remains pivotal in the political economy of western water reallocation. It involved negotiations over land and water rights between representatives of the city of Los Angeles and approximately eighteen hundred farmers and town lot owners between 1905 and 1935. By 1935, Los Angeles had acquired 95 percent of the farm acreage and 88 percent of the town properties in the valley. The water transferred from Owens Valley, a marginal agricultural area, made possible the growth of Los Angeles, and Owens Valley remains the largest single source of water for the Los Angeles Basin. Yet, the Owens Valley transfer has a very negative legacy and has hindered subsequent efforts to reallocate water from agriculture to urban and environmental uses. The negotiations for water rights and land took thirty years to complete and were often acrimonious. I analyze the negotiations between representatives of Los Angeles and Owens Valley farmers to determine the sources of bargaining conflicts. I also evaluate the economic impact of the exchange on both parties to show that each party was made substantially better off. Yet, the notion of “theft” remains. To explain this, I examine the distribution of the economic benefits of the water and land sale. Distributional issues take on greater importance when there are valuation disputes and the gains from trade are shared very unequally. With these insights, I conclude with lessons for contemporary western water reallocation.