Coasean Bargaining in Texas

March 9th, 2013

Here’s one way to allocate property rights efficiently:

A consortium of Central Texas businesses and communities has floated a novel solution to the tug of war over Colorado River water: Pay downriver rice farmers not to farm rice.

Members of the Central Texas Water Coalition are asking the Lower Colorado River Authority to pay rice farmers at least $100 million not to farm rice in perpetuity. They figure that’s cheaper than the cost of a proposed downriver reservoir, whose costs the LCRA estimates at $206 million.

In class, I use the example of the Fountainbleau hotel, and suggest to my students that it may be cheaper for the Fountainbleau to pay the other hotel *not* to operate than it would be to compensate them for blocking their access to light. When I try to explain to my students this notion, they are always shocked. This is an even better example.

Via Tyler Cowen