Property Rights as Institutional Arrangements

3.1 The Issues of Property Rights

Property rights are the formal and informal institutions and arrangements that govern access to water and other resources, as well as the resulting claims that individuals hold on those resources and on the benefits they generate (Bromley 1997). A property right is best defined as a tripartite social relationship giving those granted resource access, power (enforced by the state) over other individuals, and restrictions of others control or use of the resource (Macpherson 1978). "The establishment of such a set of property rights will then allow individuals in highly complex interdependent situations to be able to have confidence in their dealings with individuals of whom they have no personal knowledge and with whom they have no reciprocal and ongoing exchange relationships" (North 1989, p. 1320). Coase (1993) argues that the best solution, if transaction costs are present and low, is to give property rights to the players such that incentives are established for them to use the production factors in the most productive manner. A system of property rights forms the basis for all market exchange and the allocation of property rights in society affects the efficiency of resource use. Cole & Grossman (2002) argue that ultimately, the only way for efficiency-

enhancing exchange to take place is for enforceable property rights and duties to be established.

Property rights in water are difficult to define. Changes in any characteristic of water property rights could potentially affect other water users. The institution of property rights is dependent on support by the state and requires a working legal system that can define, allocate and enforce property rights. From a historical perspective, four types of property rights have been described in relation to water resources, which reflect the evolving nature of water from a plentiful resource to a scarce one (Bromley 1989; Schlager & Ostrom 1992):

• Open-access refers to situations in which property rights have not been defined, i.e. nobody holds exclusive title to the resource;

• State-ownership refers to situations in which the state holds the exclusive title to a resource and controls access to the resource;

• Common property generally refers to resources for which the exclusive title is in the hands of a group of individuals; and

• Private property exists when the exclusive title to the resource is held by individuals or corporations.

Private property rights are sufficient for the production of private goods, while public goods have to be safeguarded by state intervention. The rights holders of common property regimes use water resources for the production of both private and public goods. Common property rights are private property rights shared by a group of people according to agreed rules. Common property is seen as a way of promoting notions of community and reducing conflict in some complex systems, and as an equitable and efficient way of achieving sustainable resource use, especially under uncertainty (Quiggin 1988). The state property regime has the advantage that it is flexible regarding adaptation to changing values of the society (Glück 2002). The private water rights system, collective action institutions, and state management organizations are complementary institutional components of a new governance structure for water resources (Saleth & Dinar 2004).

Water is a non-exclusive resource - more than one party may own rights to use different attributes of the same resource. If property rights are treated as bundles of rights to different attributes of water resources, it becomes clear that individuals rarely own rights to all attributes of the resource. A higher level of government intervention means that the government holds rights to more attributes of a resource. Government intervention in property rights can improve the potential for water management by protecting attributes of water resources most threatened by the pursuit of private economic gain. "Given that the existence of "transaction costs" means that the necessary changes cannot be achieved by voluntary exchange alone, the efficiency gains from optimal rights structures can be achieved only if the state intervenes to change the structure of property rights" (Quiggin 1988, p. 1076). Historically, and at present, water in the MDB is subject to a state property regime. Legal property rights to water attributes are restricted to government agencies. While this continues, water users must rely on definition and enforcement of government water allocations rather than on their own legal rights.

Table 1: A comparison of priority and proportional entitlement systems

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