The level of noise about water shortages, combined with the reality of hardships in agriculture, is getting high enough that something(s) may actually get done. That is troubling since history suggests that what will happen is that new rules and regulations will simply get piled on top of the existing rules and regulations. Not a good out come.

The thing that bothers me about your all in auction idea is that it is too complicated and, as a result, open to endless gaming and manipulation. That means it would take roughly forever to implement.

I think that the only political feasible approach is for the governor to declare water a fundamental resource to be protected as the California Constitution permits. In other words, gore everyone’s ox all at once. That won’t prevent gaming the outcome, but it would happen out in the open where (almost) everyone could see it going on.

Here are my reactions:

1. I agree that bolting one solution on top of an existing system is hardly satisfactory
2. I disagree that All-in-Auctions are too complicated. In their most basic form, AiAs work in this way:
   1. Define water rights for an area.
   2. Put use rights (for a period) up for sale. Only rights-holders can bid. (This assumes that they have the same infrastructure, accounting, environmental and third-party impacts.)
   3. The highest bidders pay for use rights, and rights owners receive those payments.
   4. Net buyers purchase more rights than they began with (paying cash for the difference); net sellers do not (they receive cash for the difference). “Wash” sellers buy back as many rights as they own, “paying themselves,” i.e., paying no cash.
   5. Rights-owners decide when to expand AiA to include more bidders/other areas/other AiAs.

   Note that AiAs work within an existing system of water rights.

3. Goring everyone’s ox and reallocating all water rights by some new rule would be a disaster:
   • Violation of Fifth Amendment ban on takings.
   • Arbitrary destruction of land values by removing water rights appurtenant.
   • Endless struggles over who gets rights under “new” allocation.

   I am going to be conservative here and say that revolution is NOT what we need…

Bottom Line: Markets can turn miserable starting points into efficient end points — via beneficial trades among willing parties.