Water Use Externalities and Urban Growth: Revisiting the Owens Valley Controversy as a Dynamic Game

Urbanization draws in resources from the surrounding rural areas as part of the development process. Farmers sell to the urban market but may sacrifice their land, water and air to sustain the growth of the city. Is the process of growth that draws in these resources fair?

This project revisits the Owens Valley controversy with a formal economic model of farmer sales to the city. The Owens Valley controversy involves Los Angeles acquiring water rights from many farmers to support its growth during the 1920s. An extensive historical literature questions the fairness of this process and whether farmers got fair compensation for their water rights and hence, their livelihoods.

We model and estimate the importance of one factor that might contribute to this unfairness: externalities in water use. If a farmer decides not to sell out to the city, but their neighbor does, this may make it harder for the first farmer to keep on farming, because they are less able to use water singly than in a group. Therefore, anticipating the neighbor may sell out, the first farmer wishes to sell out sooner. These externalities create pressure on farmers to sell out. We formally model this process and estimate the extent of these externalities between farmers in a dynamic game of when to sell.