Public Trust Doctrine: Regulation, Property Rights, and Environmental Outcomes

1
Public Trust Doctrine Regulation, Property
Rights, and Environmental Outcomes

• Gary D. Libecap
• University of California, Santa Barbara
• National Bureau of Economic Research
• Hoover Institution
• PERC

2
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• Objective
• Describe pressures to re-allocate water from low
  to higher valued uses (agriculture to urban and
  environmental). Australia, Chile, Mediterranean
  Europe, the American West.
• Describe options for market-based exchange.
• Describe the alternative reliance on state power
  with the Public Trust Doctrine as an example.
• Illustrate with the notorious public trust case,
  1983 National Audubon Society v. Superior Court
  33 Cal 3d 419, that dealt with an important
  water/environmental problem and set precedents
  for subsequent actions. Extended the Public Trust
  Doctrine beyond navigable waterways. Example of
  the use of state power rather than markets.

3
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• Shifting demands for water.
• Reallocation pressures to higher-valued uses
  urban, environmental, recreational from
  agriculture.
• Mechanism market or judicial/administrative
  reallocation.
• Advantages of market.
• Speed Delay is costly and the parties are
  residual claimants.
• Generates information Sellers and buyers in
  bargaining have incentive to calculate their
  reservation values and weigh them against
  opportunity costs.
• Competitive bargaining brings convergence of
  reservation values. Bi-lateral monopoly,
  incentives for convergence.
• Property rights provide incentives for investment
  and trade.

4
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• Judicial/regulatory
• Adversarial, Slow, divisive
• Public Trust reallocation
• All or nothing transfers.
• Parties have incentive to misrepresent
  reservation values as credibly as possible to
  achieve a re-allocation in their benefit.
  Low-cost for dedicated groups. Bias.
• Open-access standing for litigation. More likely
  to go to trial.
• No compensation.
• Appeals. Divisive. Costly.
• Delay.
• Undermines property rights.

5
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• Illustrate with the Mono Basin Controversy.
• Los Angeles acquired the water rights 1930s,
  1940s.
• Fixed capital investment.
• High quality, gravity flow water
• 15 of Los Angeles water, Mono, 85 from Owens
  and Mono.
• Power generation.

6
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• No major diversion until 1970 with construction
  of the second aqueduct.
• Diversion results in drop in level of Mono Lake
  by 46 feet drying up of 4 trout streams,
  tributary to Mono Lake.
• 1970s new demands for recreation and refilling
  lake
• Instead of buying Los Angeles water rights,
  chose litigation.
• Over 20 years of court battles, all the while the
  lakes level continued to decline.

7
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• 1983 National Audubon Society v. Superior Court
  33 Cal 3d 419
• Thus, the public trust is more than an
  affirmation of state power to use public property
  for public purposes. It is an affirmation of the
  duty of the state to protect the peoples common
  heritage of streams, lakes, marshlands and
  tidelands(33 Cal 3d 441).
• Thus, the function of the Water Board has
  steadily evolved from the narrow role of deciding
  priorities between competing appropriators to the
  charge of comprehensive planning and allocation
  of waters. (33 Cal 3d 444).
• Inherent publicness of certain resources.
  Navigable streambeds. Avoid holdups.
• Public Trust extended to stream access cases
  endangered species cases, wildlife.

8
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• 2005 40 percent of Los Angeles historical
  aqueduct supply directed to environmental
  enhancement in Mono and Inyo Counties.
• 166,000 acre feet annually,83,166,000 PV
  1,427,052,576.
• 1995 to 2000 the aqueduct provided 63 of citys
  water. 2001-34.
• Does not include costs of stranded capital nor of
  lost electricity, litigation, nor of uncertainty
  for other property rights.

9
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• Public trust regulatory responsibilities applied
  ex post to existing water rights
• use rights reconsidered in light of changing
  conceptions of the trust.
• Water belonged to the people.
• The court charged the State Water Resources
  Control Board with monitoring water use and
  re-allocating consistent with the public trust.
• Creates a regulated commons. Opposite direction
  from fisheries, air pollution, etc.
• All or nothing transfers do not generate relevant
  information for optimal reallocation.
• Regulatory agencies lack sufficient information
  on changing values to timely respond.
• More trials, conflict and delay.
• Inherent uncertainties for property rights and
  investment.

10
The Public Trust Doctrine, Property Rights, and
Environmental Outcomes

• Example of reliance on the police power of the
  state rather than markets to allocate resources.
• If extended will weaken property rights and
  reduce the ability of society to respond quickly
  to changing resource values smoothly, and at
  relatively low cost.