Property, Unbundled Water Entitlements, and Anticommons Tragedies: A Cautionary Tale From Australia

Abstract

As water becomes an increasingly scarce resource, a lack of clarity in relation to its use can produce both conflict among and inefficient use by users. In order to encourage markets in water and to ensure the viability and functionality of those markets, governments in many jurisdictions have moved away from commons property as a means of water allocation, and towards systems of private property in water. In doing so, one policy and legal option is “unbundling”, which seeks carefully to define both the entitlement to water and its separation into constituent parts. Advocates claim that unbundling makes water rights easier to value, monitor, and trade. But is unbundling the most efficient means of allocating water use rights? Or might such fragmentation produce what has come to be called an “anticommons tragedy”? To answer these questions, this article contains four parts. The Introduction provides the legal background to the modern means of allocating the use of water amongst competing, or rivalrous, users. Part I considers the theoretical nature of property, and the way in which such theory might be extended to water allocation through unbundling. Part II presents unbundling as it has been implemented in the Australian state of South Australia. This allows us to assess the extent to which the stated policy rationale for unbundling—certainty and transferability of entitlements—has been achieved and the extent to which this is a desirable outcome. Our analysis can be applied to any jurisdiction, most notably the arid and semi-arid southwestern United States, considering unbundling as a legal and policy option for the allocation of water use. The Conclusion reflects upon the potential for unbundling water entitlements in arid or semi-arid environments. The South Australian experience reveals a reluctance to embrace unbundling, both on the part of the state in terms of implementing, and on the part of market actors holding existing proprietary interests in water. This reluctance ought to be viewed by other jurisdictions as a warning about the effectiveness and efficiency of unbundling. We show that unbundling efforts may not only fail to provide efficiency gains, but also, and much more worryingly, may in fact drive anticommons tragedies that entirely inhibit any beneficial use. We propose that our anecdotal and theoretical analysis of South Australia requires empirical research both in Australia and in other jurisdictions climatologically, hydrologically, and in underlying legal framework, similar to Australia. Such empirical research will test our conclusions in relation to South Australia, both in respect to the operation of the water market and as to the behavior of market actors.