JOURNAL OF THE AMERICAN WATER RESOURCES ASSOCIATION
OCTOBER AMERICAN WATER RESOURCES ASSOCIATION
WATER TRANSFERS AND THEIR IMPACTS: LESSONS
FROM THREE COLORADO WATER MARKETS1
Charles W. Howe and Christopher Goemans2
ABSTRACT: This paper presents an analysis of the effects of differ-
ent institutional arrangements and economic environments on
water markets. Characteristics of water rights transfers in the
South Platte Basin of Colorado and transfers of shares of the
Northern Colorado Water Conservancy District (NCWCD) are com-
pared to show how different institutional arrangements can affect
the types and size distributions of transfers. The characteristics of
water rights transfers in the prosperous South Platte are then com-
pared with water rights transfer characteristics in the economically
marginal Arkansas River basin of Colorado to identify the effects of
different economic environments. Finally, the economic losses from
reductions in irrigated acreage resulting from water transfers are
estimated for the South Platte and Arkansas and compared with
purchase prices by municipalities. Transfers in the South Platte
were to new uses in the same basin, while more recent transfers in
the Arkansas were to out of basin users. Transfers of South Platte
rights and especially NCWCD shares were small and continuous
over time, while transfers in the Arkansas were dominated by a few
very large transfers. The negative impacts are judged to be more
severe in the Arkansas basin than in the South Platte. Purchase
prices paid by municipalities substantially exceeded capitalized
transitional losses in the selling areas. In the South Platte, gains
and losses were in the same basin, while the Arkansas absorbed
the losses, with the benefits going to the purchasing basin.
(KEY TERMS: water markets; transaction costs; economic efficien-
cy; economic impacts; compensation.)
Howe, Charles W. and Christopher Goemans, 2003. Water Transfers and Their
Impacts: Lessons From three Colorado Water Markets. Journal of the American
Water Resources Association (JAWRA) 39(5):1055-1065.
OBJECTIVES AND STRATEGY.
In the western United States, the development of
new water supplies has become costly in economic
and environmental terms. New dams and reservoirs
generate strong opposition, while some rivers are
1Paper No. 02065 of the Journal of the American Water Resources Association. Discussions are open until April 1, 2004.
2Respectively,Professor Emeritus of Economics and Ph.D. Candidate in Economics, University of Colorado-Boulder, Campus Box 468,
Boulder, Colorado 80309 (E-Mail/Howe: Charles.Howe@Colorado.edu).
JOURNAL OF THE AMERICAN WATER RESOURCES ASSOCIATION
2003
already so highly regulated that added storage would
decrease yields. Thus it is important that water be
transferable from older, lower valued uses to newer,
higher valued uses, especially because roughly 85 per-
cent of the consumptive use of water takes place in
irrigated agriculture, much of it in the production of
low valued crops (USGS, 1995). In numerous studies,
researchers have argued that water markets are
important in increasing this flexibility (Howe et al.,
1986a, 1986b; Wahl, 1989; Anderson and Hill, 1997;
Easter et al., 1998).
Changes in water ownership in the western United
States occur largely through informal water markets
in which buyers and sellers search for one another in
ways varying from phone calls and local bulletin
boards to water brokers and regional computer net-
works such as that found in the Westlands Irrigation
District of California (Howitt, 1998). These ownership
transfers involve either state water rights or shares
in water distribution organizations such as ditch
companies and conservancy districts whose supplies
are underlain by water rights. An obvious condition of
a transfer is that infrastructure must exist through
which the water can be transferred to the new use,
although “exchange” arrangements can be agreed
upon to effect transfers indirectly.
The objectives of this study are (1) to observe how
different institutional arrangements for water mar-
kets, regional economic conditions, and property right
definitions in water affect the functioning of water
markets in terms of the types, size, and frequency of
transfers that occur; and (2) to determine how
the economic and social conditions of a river basin
affect the economic impacts of agricultural to urban
1055 JAWRA
 HOWE AND GOEMANS
transfers on the areas of origin. The study initially
contrasts the transfers of state water rights (native
water) that pass through the Colorado water court
system with transfers of shares in the NCWCD that
are able to bypass review by the water courts. Trans-
fers of state water rights in the South Platte are then
compared with such transfers in the Arkansas. The
direct and indirect economic impacts are then esti-
mated of agricultural to urban water rights transfers
in those two basins. Only a few studies have quanti-
fied the impacts that water transfers have had on
areas of origin (e.g., Vaux and Howitt, 1984; Howe et
al., 1990; Taylor and Young, 1995). The study is based
on all traditional water rights transfers and all trans-
fers of shares in the NCWCD from 1979 through
1995, and these transfers were characterized by type
(for example, agricultural to urban), size in acre feet,
and date of the transfer.
WATER OWNERSHIP IN THE
WESTERN UNITED STATES
The predominant legal system relating to water in
the western United States is the “appropriations” or
“priority” system that, in contrast to the older “ripari-
an” system of water law of the eastern states, treats
the use of water as personal property separate from
the land and subject to transfer or sale (Radosevich
et al., 1976; Getches, 1997). Under this system, all
water withdrawn from the natural setting is repre-
sented by a “water right” or by a ground water pump-
ing permit. These rights and permits may be owned
by individuals or water distribution organizations
such as irrigation ditch companies, conservancy dis-
tricts, municipalities, or firms. The shares of these
organizations, in turn, can be bought or sold. In Col-
orado, the transfers of state water rights and out of
ditch share sales are overseen by a system of water
courts, while in other western states similar transfers
are overseen by the office of the state engineer or
other competent water agencies. This oversight is
intended to protect property rights in water and to
protect third parties from externalities that might be
generated by transfers. In Colorado, this protection is
extended only to other water users, not to public val-
ues such as water quality, ecosystems, and communi-
ty values. Other western states use broader sets of
criteria in the water transfer approval process (for
Idaho see IDWR, 1985, 1986; for Wyoming see Dobbs
et al., 1971; MacDonnell and Rice, 1994). More will be
said about these criteria in the section on economic
impacts. Water rights and water shares can be modi-
fied by the oversight agency as a condition of transfer
approval.
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In addition to permanent transfers of water owner-
ship, it is possible under some conditions for water
owners to “rent” or “lease” water temporarily to other
users for periods of a year or more, greatly facilitating
adjustments to short term climate events, especially
droughts. In nondrought years, towns frequently rent
some of the excess water held for drought protection
or future growth to nearby agriculture, subject to
recall in drought years (regarding rental markets in
the Northern Colorado Water Conservancy District
see Howe et al., 1986a, pp. 189-192). Cities are
increasingly contracting with agricultural interests
for agricultural to urban leases on a climate contin-
gency basis to firm up their supplies during drought.
COMPARISON OF THE TWO STUDY BASINS:
THE SOUTH PLATTE AND ARKANSAS
BASINS IN COLORADO
Table 1 provides comparative economic, land use,
and demographic data for the two regions. It is imme-
diately seen that the Arkansas is much more special-
ized in agriculture and that population density is
much lower. The South Platte Valley is a prosperous,
diversified, and highly integrated region. Land use
changes are occurring in part for reasons unrelated to
water availability, especially rapidly expanding
urbanization and commercial development.
Agriculture is increasingly specializing in horticulture
and livestock with resultant net income per farm acre
($73) much higher than in the Arkansas Valley ($26).
The Front Range cities in the South Platte like Fort
Collins, Greeley, Boulder, and Denver have experi-
enced rapid growth in the food processing, telecom-
munications, biotechnology, and energy sectors.
A unique form of water market is found in the
NCWCD that provides about 30 percent of the water
available in the South Platte by importing supple-
mental water from the western side of the Rockies
through the federal Colorado-Big Thompson Project.
NCWCD shares have unique characteristics that
make them particularly attractive to water users and
particularly conducive to market activity: (1) they are
homogeneous units (each share gets the same amount
of water and there are no priorities); (2) there is no
responsibility for the protection of return flows, a
quirk of Colorado water law concerning water import-
ed from another major basin; and (3) transfers do not
have to pass through the water court but require only
the approval of the NCWCD board. These features
suggest that transaction costs of transfers should be
much lower than for transfers of traditional water
rights. NCWCD water cannot, however, be trans-
ferred outside the Northern District boundaries
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 WATER TRANSFERS AND THEIR IMPACTS: LESSONS FROM THREE COLORADO WATER MARKETS

TABLE 1. Characteristics of the South Platte and Arkansas Basins.

Totals
Without
South Platte Arkansas Valley City of Pueblo

Land In Farms (1,000 Acres1992)* 2,887 3,629 2,732

Total Land (1,000 Acres 1992)* 5,151 4,934 3,414
Farm Land as a Percent of Total Land (1992)* 56 74 80

Farm Net Income (1,000 $,1990)** 209,550 94,046 72,702

Total Personal Income (1,000 $,1990)** 13,768,637 1,345,787 278,587
Farm Income as a Percentage of Total (1990)** 1.5 7 26

Population (1990)* 984,846 153,809 30,751

Total Land Square Miles (1990)* 8,108.9 7,725.8 5,337
Population Per Square Mile (1990)* 121.5 19.9 5.8

**U.S. Bureau of the Census (1996).

**U.S. Bureau of the Census (1994).

because of financial obligations of the District to the
U.S. Bureau of Reclamation.
Unlike northeastern Colorado, the agricultural
economy of the Arkansas Valley in Colorado has been
depressed for decades. Climatic extremes and highly
variable water supplies have made much of agricul-
ture economically marginal. The beet sugar industry,
on which the early hopes for settlement in the valley
were pinned in the late 1800s, has closed down com-
pletely. The city of Pueblo has experienced cycles of
growth and contraction. Assessed values and property
taxes have failed to grow. Demographic data show
young people leaving the region (Weber, 1989),
although there has been a small population increase
since 1996. The valley has long had small acreages of
high-valued horticultural crops like flower seeds, mel-
ons, and tomatoes, but these crops are severely mar-
ket-limited so cannot significantly be expanded.
In the early post-World War II period, water sales
in the valley were from agricultural interests to the
local cities of Pueblo and Pueblo West and to thermal
electric generating plants. By the 1980s, transfers
increased in size and were to the larger cities in the
Denver metropolitan area. This change occurred part-
ly because of the rapid growth of those cities and their
need for water and partly because of the persistence
of depressed economic conditions in the Arkansas.
The out of basin transfers were facilitated by existing
diversion facilities in the upper Arkansas that permit-
ted diversions into the South Platte River, which
serves the metro area.
Like the South Platte, the Arkansas has two types
of water: the native water represented by traditional
water rights and supplemental water imported from
the western side of the Rockies through the federal
Frying Pan-Arkansas Project. The Frying Pan-
Arkansas Project was initiated in the 1960s to supple-
ment the highly variable native supplies in the
Arkansas. This supplemental water is administered
by the Southeastern Colorado Water Conservancy
District, in many ways the counterpart of the
NCWCD. The major difference between the two dis-
tricts, however, is that the “Fry-Ark” water is allocat-
ed annually by an elected committee and is not
subject to trade or sale. As with NCWCD water, this
water cannot be transferred outside the Southeastern
District.
THE TWO WATER MARKETS OF
THE SOUTH PLATTE BASIN
The first market to be characterized is that for
water rights representing water native to the basin.
All such transfers in the South Platte Basin were
identified in the records of the Division 1 (South Plat-
te) Water Court for 1979 through 1995. These trans-
fers frequently take the form of shares in ditch
companies that own the underlying water rights.
Amounts transferred annually were compiled, and the
transfers were classified by size in acre feet (1 acre
foot = 1,230 cubic meters) and nature of buyer and
seller (agricultural to agricultural, agricultural to
urban, nonagricultural to nonagricultural).
The tables and graphs below characterize the
transfers of state water rights in the South Platte
Basin from 1979 through 1995. Figure 1 shows the
acre feet of native water transferred by year. The
1987 peak followed several years of high population

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 HOWE AND GOEMANS

Figure 1. Quantity of Native South Platte Water Transferred by Year.

growth and the resultant municipal purchases of
water from agriculture. The 1992 peak represents
large purchases by the City of Fort Collins for much
the same reason. Of all the transfers, 87 percent were
from agricultural to urban use. Figure 2 shows the
frequency distribution of these water transfers by
size.
The median transfer size of 367 acre feet is small
compared with some large transfers that have recent-
ly attracted the public’s attention (e.g., the City of
Thornton’s transfer of 20,000 acre feet in the South
Platte in 1987). The mean value of 3,425 acre feet
results from unusually large purchases by Thornton
and Fort Collins. The small median size suggests a
relatively smooth working water market in which
transaction costs are not high enough to preclude fre-
quent smaller purchases when added supplies are
needed. Price data are not recorded by the water
court or the division engineer ’s office nor by the
NCWCD, so prices are somewhat difficult to uncover
and vary from sale to sale as affected by the seniority
of the right, proximity to buyer, water quality, costs of
physical transfer, and level of legal opposition by
other water users. However, data on city purchases
indicate recent prices in the $2,000 to $2,500 per acre
foot range for permanent transfers (CSUWC, 2001,
2002).
The second market in the South Platte is that for
shares in the NCWCD, which was established in 1937
to contract with the Bureau of Reclamation for water
from the federally sponsored Colorado-Big Thompson
Project. This project was initiated in 1937 in response
to the drought conditions of the 1930s (see Tyler,
1992). The project brings an average of 270,000 acre
feet of water into the Platte Basin from the headwa-
ters of the Colorado River on the western slope of the
Rocky Mountains and represents about 30 percent of
the total supply in the South Platte. The establish-
ment of a market for this water in the form of shares
in NCWCD is greatly facilitated by the characteristics

Figure 2. Distribution of Native South Platte Transfers by Size.

(Median: 367.17; Mean: 3,425.31)

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 WATER TRANSFERS AND THEIR IMPACTS: LESSONS FROM THREE COLORADO WATER MARKETS

cited earlier: the shares are homogeneous, deliverable
almost anyplace in the district because of well devel-
oped infrastructure, and not subject to the water
court review process (Radosevich et al., 1976, Chapter
6). A very active water market has developed within
the district (Howe et al., 1986a, 1986b; Michelsen,
1994). Figure 3 shows both the changing pattern of
ownership and actual use of Northern District water.
Cities and industry are increasing their share of own-
ership, but the share in actual use is not increasing as
rapidly because towns typically “rent” some of their
water back to agriculture on an annual basis, subject
to recall in drought years. In this respect, the water
courts have allowed towns wide latitude in defining
what constitutes “beneficial use.”
Figure 4 shows the volume of NCWCD water trans-
ferred by year. These transfers have accelerated in
recent years because of the highly desirable charac-
teristics of the shares (as described earlier) and rapid
population growth in northeastern Colorado. Share
prices have followed the growth pattern, too, as
shown in Figure 5. The patterns of prices and volume
of transfers show cycles that relate in part to varying
business and demographic conditions and in part to
varying climatic conditions. Statistical analyses of
these relationships are continuing.
Figure 6 shows the distribution of NCWCD trans-
fers by size. Transfers were predominantly agricultur-
al to urban (64 percent), but 26 percent were
agricultural to agricultural. The persistence of agri-
cultural to agricultural transfers in the Northern Dis-
trict suggests that there is a large potential for
beneficial agricultural to agricultural transfers when
transaction costs are low. The median size of transfer
of 16.8 acre feet is much smaller than that of state
water rights transfers, suggesting an efficient and
continuous market with low transaction costs that
allow buyers and sellers to undertake small transac-
tions as the need arises rather than occasional larger
transfers.
Comparison of the results of these two markets
suggests the following conclusions: (1) the homoge-
neous nature of the NCWCD shares greatly facilitates
trading; (2) the avoidance of water court review great-
ly reduces transaction costs and decreases the uncer-
tainty of outcome introduced by that process; and (3)

Figure 3. (a) Colorado-Big Thompson Water Deliveries (1957 to 1999) and

(b) Colorado-Big Thompson Shares Owned (1957 to 1999).

Figure 4. Quantity of NCWCD Water Transferred by Year.

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 HOWE AND GOEMANS

Figure 5. Colorado-Big Thompson Price data. Data from “The Water Strategist” indicated by WS data.

Figure 6. Distribution of NCWCD Transfers by Size (1979 to 1999).

(Median: 16.8; Mean: 34.00)

the ease of trading and the small size of the shares
result in continuous trading over time so that water
users do not have to “buy ahead” as is the case with
buying traditional water rights.
COMPARISON OF TRANSFERS OF TRADITIONAL
WATER RIGHTS IN THE ARKANSAS VALLEY
AND THE SOUTH PLATTE
The strategy of this section is to compare the char-
acteristics of water transfers in the Arkansas Valley
with those of the South Platte. Thus, water rights
transfer data were collected for the period 1979
through 1995 from the Division 2 (Arkansas) Water
Court. Nearly all water rights transfers were from
agricultural to urban uses. As a result, the region lost
approximately 68,000 irrigated acres during the data
period. Transfers over time were again quantified in
acre-feet and are shown in Figure 7. This shows a dis-
continuous pattern of transactions with a bulge in the
1983 through 1984 period when most of the water of
the Colorado Canal was sold to the City of Aurora.
The distribution by size of transfer (Figure 8) is also
discontinuous, consisting of some small transfers but
dominated by two very large transfers: the Colorado
Canal sale of 100,000 acre feet in 1985 and the Rocky
Ford majority of 11,890 acre feet, also in 1985.
It seems clear that limited demand for new water
supplies within the basin and high transaction costs
associated with transbasin transfers caused water

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 WATER TRANSFERS AND THEIR IMPACTS: LESSONS FROM THREE COLORADO WATER MARKETS

Figure 7. Quantity of Arkansas Valley Water Transferred by Year.

Figure 8. Distribution of Native Arkansas Valley Transfers by Size.

(Median: 366.82; Mean: 6,199.09)

market activity to be dominated by a small number of
large transfers. Transbasin transfers always attract
protests that increase the time and cost of the court
review process. Transaction costs do not increase in
proportion to the size of transfer, so metropolitan buy-
ers prefer to buy in large amounts when negotiating
transbasin transfers, i.e., there are economies of scale
for the buyer.
In comparing water rights transfers in the two
basins, the greatest difference is that all the transfers
in the South Platte were to other uses in the same
basin (and hence generally in the same economic
area) while out of basin transfers in the Arkansas
totaled 114,320 acre feet (88 percent) compared to
15,568 of in basin transfers. The median size of trans-
fer of 367 acre feet is identical to that of the South
Platte, while the mean sizes are quite different: 6,199
in the Arkansas versus 3,425 in the South Platte
because of the very large Colorado Canal transfer.
The pattern of Arkansas transfers over time and the
distribution of transactions by size are both discontin-
uous.
THE COMPARATIVE REGIONAL ECONOMIC
IMPACTS OF WATER RIGHTS TRANSFERS
IN THE SOUTH PLATTE AND
ARKANSAS BASINS OF COLORADO
The economic and social impacts of a sale of agri-
cultural water on the area of origin are hypothesized
to depend on (1) the size and seniority of the transfer,
(2) the vitality of the regional economy, and (3)
whether the transfer is to a new use in the same or a
different economic region. When agricultural water
rights (typically senior) are sold in Colorado, the land
that had been irrigated by that water is usually

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 HOWE AND GOEMANS
required by the water court to be dried up in perpetu-
ity (a requirement that makes little economic sense if
junior rights might be substituted for those sold to
support production of alternative lower valued crops).
When agricultural production falls, activities linked
to agriculture are negatively affected: suppliers of
agricultural inputs lose business; processors of agri-
cultural outputs lose supply sources; financial institu-
tions lose the demand for loans, etc. While the selling
farmer is presumably better off, the surrounding com-
munity suffers losses of income and social displace-
ments as people must move and change jobs while the
community loses some of its ability to support commu-
nity services. Naturally, similar consequences occur
whenever any activity shuts down, so the question is
whether unique consequences result from irrigated
agricultural acreage.
If the economic region is economically diversified
and buoyant, alternative employment opportunities
are close at hand and the selling farmer can find local
investment opportunities for his or her money. The
“secondary impacts” in such a setting are likely to be
short lived. If the new use of the water supports more
profitable activities in the same economic region, the
region as a whole will be better off economically from
the water sale. The South Platte basin is such a
region. We have seen above that the majority of trans-
fers in the South Platte basin are from agricultural to
urban and industrial uses and all were to uses in the
same basin. Thus while agricultural and linked activi-
ties are diminished over time, other activities are
stimulated by the efficient acquisition of water and
unemployed resources are likely to quickly find alter-
native opportunities.
In the Arkansas Valley, the economy has historical-
ly been depressed and new local demands for water
supply have been limited. Eighty-eight percent of the
water transferred in the 1979 through 1995 study
period was to out of basin buyers. The water use ben-
efits were, therefore, outside of the region, while lim-
ited opportunity existed for the proceeds from the sale
of the water to be invested in the local economy. Most
of the water sale proceeds have been used to reduce
farm debt (Weber, 1988, unpublished paper, 1989,
unpublished paper). In such cases, the regional
impacts of a permanent transfer of water rights can
be quite severe.
It can be argued that the farms would eventually
have failed anyway, so the water market simply
allowed the farmers to choose the optimal time to
leave the business. What the public sees, however, is
the sale of water followed by sharp declines in the
agriculture related sectors. What economic analysis
usually omits are the real human and resource costs
that occur during this transition.
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To estimate the direct and indirect personal
income, employment, and tax losses occasioned by
water sales in the two regions, input/output models of
the Minnesota IMPLAN Group, Inc. (IMPLAN, 1999)
have been used. Input/output models show the pat-
terns of provision of inputs and the uses of outputs
by the different regional sectors (SIC groups) in the
production of goods and services to satisfy “final
demands” – demands that do not depend on local pro-
duction levels (Pleeter, 1980). The IMPLAN system
was designed by the U.S. Forest Service to permit
estimates of the input-output structure of regional
economies down to the county level for policy analysis
purposes. Datasets are now commercially available
that permit the construction of the input/output struc-
ture of multicounty groups such as the five-county
area used for the South Platte (Boulder, Adams, Jef-
ferson, Larimer, and Weld) and the six counties of the
Arkansas Valley (Pueblo, Otero, Crowley, Bent,
Kiowa, and Las Animas). These sets of counties
account for most of the agricultural activity of the two
regions.
The procedure for utilizing the models involves the
following steps: (1) to determine the cropping pattern,
crop yields, and crop prices for the lands dried up by
the transfer; (2) to determine (from trade flow data
from IMPLAN) how much of the lost output had been
sold outside the subject areas; and (3) treating these
lost out of area sales as reductions in “final demands,”
to run the input/output model to determine the
changes in payments to households, taxes, and
employment that result directly and indirectly. Table
2 provides estimates of the annual direct plus indirect
impacts per acre foot of water transferred on the
regional economies of the South Platte and Arkansas
basins. These estimates were based on samples of
large agricultural to urban transfers for which
detailed cropping data were available and that
occurred in the two basins during the study period.
For the South Platte, direct and indirect personal
income losses (including wages, salaries, income from
business and investments) amount to $22 per acre
foot sold. Direct plus indirect employment losses per
thousand acre feet of water sold amount to approxi-
mately 1.8 jobs. Tax losses represent a reduction in
ability to provide public services and come to about $9
per acre foot transferred. The regional losses on a per
capita basis are nearly negligible.
These losses represent what occurs in the short run
when there is limited ability to react to the reduction
in agricultural output. Over time, human resources
and fungible capital will migrate to other employ-
ment, although this migration will be lower out of
agriculture than would be the case with other sectors
because of the culture of an agricultural way of life,
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 WATER TRANSFERS AND THEIR IMPACTS: LESSONS FROM THREE COLORADO WATER MARKETS
TABLE 2. Direct and Indirect Negative Impacts of Selected Water Transfers on
Basins of Origin: South Platte and Arkansas Basins, Colorado.
Direct Impacts
South Platte
Output (per acre-foot) 65.08
Tax Impact (per acre-foot)
Personal Income (per acre-foot) 8.52
Employees (per 1,000 acre feet) 1.29
Output (per capita) 1.61
Tax Impact (per capita)
Personal Income (per capita) 0.21
Employees (per 100,000 people) 3.92
the older average ages of farmers, and their more iso-
lated locations. The “present value” of the personal
income and tax losses over some transition period
during which human resources and fungible capital
are finding new employment summarizes the region’s
costs stemming from displaced labor and capital.
In a prosperous region like the South Platte, dis-
placed labor, capital, and land are likely to be
reemployed in other productive activities within a rel-
atively short period. We assume a period of five years.
If we use the first-year personal income loss per acre
foot plus the loss of taxes to public authorities total-
ing $31 and assume that the annual loss per acre foot
drops linearly to zero by the end of year five, the pre-
sent value of these losses is $83 per acre foot using a
discount rate of 5 percent.
The losses in the Arkansas are likely to persist
over a longer period than in the prosperous South
Platte, perhaps dissipating over ten years rather than
the five we assumed for the South Platte. If it is
assumed that the annual loss per acre foot drops lin-
early to zero over ten years, then the initial loss of
personal income plus tax losses of $41 per acre foot
has a present value of $187 per acre foot (using a 5
percent discount rate). This is more than twice the
capitalized losses in the South Platte. Even if the
transition periods were the same, the capitalized loss-
es would be greater for the Arkansas.
While marginal benefits of additional water to
municipalities are difficult to estimate because of the
delayed and uncertain nature of its uses, the pur-
chase price can be used as a lower bound estimate of
the present value of net benefits perceived by town
officials. Prices being paid for water rights by towns
in the South Platte Valley have been increasing
steadily, as was seen in Figure 5 for NCWCD shares.
Fort Collins has paid from $175 per acre foot in 1973
to $1,890 per acre foot in 1998 (in nominal terms).
Thus this lower bound on benefits substantially
JOURNAL OF THE AMERICAN WATER RESOURCES ASSOCIATION
Direct + Indirect
Arkansas South Plate Arkansas
88.99 104.06 117.02
8.83 12.24
17.89 21.6 28.48
2.02 1.78 2.57
14.11 2.56 18.51
0.22 1.72
2.63 0.53 4.27
35.26 5.63 43.49
exceeds the direct and indirect costs imposed by the
reduction of agricultural activities in the South Plat-
te. In sum, the basin appears to have gained hand-
somely overall in economic terms from the process of
transferring water from agricultural to urban uses. At
the same time, most equity issues concerning the inci-
dence of benefits and costs have probably been largely
avoided due to the mobility of resources and alterna-
tive employment opportunities.
Purchase prices for Arkansas River water rights
have been in the neighborhood of $2,000 per acre foot
(e.g., for the second half of the Rocky Ford Ditch),
indicating a net gain for the basin of origin by the
simple comparison of capitalized losses and purchase
payments. However, a significant fraction of the loss-
es is imposed on parties other than the seller. We
know from Weber’s earlier study (1989, unpublished
paper) that most farmers in the Arkansas who earlier
sold their water used the money to pay off longstand-
ing debts. While the reduction in indebtedness is a
financial gain to the farmer, it creates no new jobs in
the absence of local investment opportunities.
Comparison of the direct plus indirect loss figures
for the two basins indicates that the losses per acre-
foot incurred from the phase out of agriculture are
noticeably more for the Arkansas. Because of the
much lower population density in the Arkansas Val-
ley, the per capita losses are about eight times
greater. We argue that the per capita losses are more
relevant measures of the welfare impacts.
CONCLUSIONS
In comparing the patterns of transfers of tradition-
al water rights in the South Platte basin with trans-
fers of shares in the NCWCD, it becomes clear that
the differences in the nature of the property rights
1063 JAWRA
 HOWE AND GOEMANS
involved and the differences in the types of social
oversight used have very different results: the homo-
geneous nature of NCWCD shares make them easier
to trade, while the avoidance of water court review
contributes to a continuous market in small transac-
tions. Traditional water rights have not only different
priorities but different consumptive fractions and sea-
sonal patterns of use. A prospective buyer must
search for rights that have the right combination of
characteristics. The higher transaction costs of water
court review result in economies of scale in the trans-
fer process, resulting in much larger transfers on the
average.
The comparisons of transfer characteristics
between the South Platte and the Arkansas (both of
which involve traditional water rights and are subject
to water court review) suggest that out of basin trans-
fers (the Arkansas) involve much larger transaction
costs and thus, because of scale economies in transfer
costs, result in a distribution of transfer sizes domi-
nated by a few large, occasional transfers.
The comparative impact analysis indicates that
more severe economic and social impacts are likely in
specialized, marginal agricultural regions like the
Arkansas: the direct and indirect losses of income, tax
receipts, and employment per acre foot are likely to be
significantly higher than those in a prosperous basin,
while the losses on a per capita basis are much
greater and are likely to persist over a longer time
span.
The results suggest grounds for extra market assis-
tance to basins of origin when conditions in the basin
approximate those found in the Arkansas. The set of
criteria to be considered by the transfer agencies in
approving, modifying, or disapproving water transfers
should be expanded to include consideration of the
secondary economic and social costs imposed on the
basin of origin (as is the practice in Utah, Wyoming,
and Idaho). When it is determined that serious costs
will be imposed on the basin of origin, one or both of
two policies might be followed: (1) a transfer fee per
acre foot could be imposed on the buyer and trans-
ferred to a unit of general government (including
school districts) in the area of origin to support social
services during the period of transition; and (2) a
more gradual transfer of the water over several years
as is done currently with revegetation requirements
could be specified, allowing more time for adjust-
ments to take place.
JAWRA
ACKNOWLEDGMENTS
The authors would like to acknowledge the guidance provided
by four persistent referees over several revisions of this paper.
Their suggestions greatly improved the paper. The study was spon-
sored by the General Service Foundation, Aspen, Colorado, Grant
DS-11-99.
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