Lesson 4: Water Law – The ‘Rules of the Game’ Matter

Activity:  The Impact of Water Law on People’s Choices

 Download Activity 4a:  Teacher Guide, Handouts, Visuals (.doc file) 


  • Incentives
  • Property rights
  • Institutions

Content Standards:

Standard 4:  People respond predictably to positive and negative incentives. 

Standard 10:   Institutions evolve in market economies to help individuals and groups accomplish their goals. . . . [One] kind of institution, clearly defined and well-enforced property rights, is essential to a market economy. 

Time Required: 

  • 1 class period


  • Handouts or visuals of water law chart
  • Handouts or visuals of case studies


  1. Review definitions of water law using handout or visual of chart.
  2. Distribute or display case study scenarios.
  3. Divide students into groups or assign students to prepare for discussion by reading and considering the scenarios as homework.
  4. Debrief.
  5. Assess student knowledge with the Buck Hollow scenario.

Case Studies:  The Impact of Water Law on People’s Choices

Gold Miners 

Abe and Bob are gold miners. Abe sets up his camp on a stream, builds a sluice, and diverts water at 10 cfs (cubic feet per second) through the sluice. Bob arrives one month later and builds his camp upstream from Abe. His sluice uses 5 cfs of water. There is no problem until August, when the stream is very low. After Bob takes out water, only 5 cfs are left for Abe. 

  1. Suppose the rule is riparian common law. What happens?
  2. Suppose the rule is first-in-time, first-in-right? What happens?


Anna is Abe’s granddaughter. The family has expanded its holdings from Abe’s original claim along the stream to include 640 acres of crop­land. Anna grows alfalfa in her irrigated fields, and she could grow hay without irrigation. Connie lives downstream and grows hay, but she wants to experiment with vegetable crops. She could earn a great deal more money from vegetables than she earns from hay. Unfortunately, vegetables require more water than is left in the stream below Anna’s farm. 

  1. Suppose the rule is first-in-time, first-in-right. How could Anna and Connie come to an agreement that benefits both of them?
  2. Suppose the rules are first-in-time, first-in-right, and use-it-or-lose-­it.


Unable to buy water from Anna, Connie sells most of her land and uses her small water right to experiment with a few vegetable beds. Connie’s daughter and son-in-law come back from college to help run the farm. Cameron tells Connie that she could use one third less water if she would let him install a drip irrigation system in some of the vegetable beds. 

  1. If the use-it-or-lose-it rule is in effect, will Connie take Cameron’s sugges­tion? Explain.
  2. If the salvaged water rule is in effect, will Connie take Cameron’s suggestion? Explain. 
  3. Suppose that neither the use-it-or-lose-it rule nor the salvaged water rule is in effect. Will Connie take Cameron’s suggestion?

Environmental Amenities 

A local environmental group is concerned because in dry years the stream is so low that fish die by the thousands. They want both Connie and Anna to leave more water in the stream. Suppose that the state has eliminated its use-it-or-lose-it and salvaged water laws but defines “beneficial uses” as mining, commercial, irrigation, electricity generation, and household. 

  1. What is the likely relationship between Connie and Anna and the envi­ronmentalists?
  2. How might that relationship change if the state adds “conservation and recreation” to its list of beneficial uses?

Ground Water 

Connie’s cousin David lives in a different part of the country. While most of his neighbors are farmers, he has no fond memories of his childhood on the farm, so he started a bottled water company, pumping water from a huge underground aquifer to his bottling plant. His neighbors irrigate from the aquifer, and the nearby town draws its water from the same source. Recent studies show that 5 percent more water is being taken from the aquifer each year than returns from rainwater and other natu­ral sources. The city council has asked all users to cut back their water use by 10 percent, voluntarily.  

  1. If none of the rules on the chart is in effect—in other words, no property rights to the water in the aquifer are defined—will David abide by the voluntary cut-backs? Explain. 
  2. Suppose the city council puts a limit on the amount of water that can be drawn from each well. What might David do?
  3. Suppose a salesman offers to show David a way to reduce his use of water by purchasing some new equipment for his plant. Is David likely to buy? Explain. 
  4. Suppose the city council offers to sell David a portion of the aquifer. What other property rights rules would encourage David to buy the aquifer? What rules would discourage him from buying it? 
  5. Suppose David buys water rights to 15 percent of the aquifer. An inventor offers to sell him a technology that will reduce his water usage by 10 percent. What rules would encourage David to buy this water-saving technology? What rules would discourage him from buying it?

Assessment:  The Case of Buck Hollow Creek 

Buck Hollow Creek is a tributary of the Deschutes River in Oregon. It used to teem with spawning steelhead, but spawning runs have dwindled [recently] to no more than 30 pairs. The problem is that the stream dries up each year when Rocky Webb, a local rancher, withdraws water—to which he has a legal right—for irrigation. Webb can remember the healthy population of steelhead from his days growing up on the ranch. . . . But, as he points out, ‘I also have a bottom line to worry about.’ (Enviro-Capitalists, p. 95.)  

From the above summary and your knowledge of laws that govern property rights to water, answer the following questions. 

  1. What statement in the paragraph provides evidence that Rocky Webb’s property rights to water are based on prior-appropriation (first-in-time, first-in-right) rather than riparian rights?
  2. Which of the following events will increase the possibility that Rocky Webb would listen to environmentalists who want him to leave water in the stream?
    • Oregon strengthens its forfeiture (use-it-or-lose-it) laws
    • Oregon repeals its salvaged water law.
  3. True or False. We know that Rocky Webb is an anti-environmentalist because he won’t leave water in the stream.

Andrew Purkey of the Oregon Water Trust saw a chance to help the steelhead by helping Rocky Webb’s bottom line. He negotiated a deal with the rancher whereby Webb agreed to stop irrigating 50 acres of hay ground in return for $6,600, the profit he earned from 78 tons of hay produced on the field [the year before] .. . . The [Oregon Water] trust hopes that these flows, combined with efforts to restore streamside vegetation and to fence cattle away from the banks, will increase to 500 pairs the number of steelhead returning to the creek. 

Webb is happy with the outcome that benefits both sides. ‘I see it as a step for the positive to make people realize there are workable solutions out there. . . . I think anytime you have an agree­ment between a rancher or agriculture and an organization, it’s good.  

4.  Based on Part 2 of the story and your knowledge of property rights and water law, which of the following statements is likely to be true? 

  • A.  Rocky Webb’s property rights were clearly defined.
  • B.  Oregon law does not include “in-stream flows” (water left in the stream) as a beneficial use.
  • C.  Oregon has a use-it-or-lose-it law.
  • D.  Oregon’s property rights laws increased the likelihood that Rocky Webb and local
    environmentalists would be involved in a long, angry dispute.     

Debbie Henney, FTE Director of Curriculum Receives Bessie B Moore Service Award

  Foundation for Teaching Economics is proud to announce that Debbie Henney, director of curriculum for the Foundation for Teaching…

FTE Pays Tribute to Jerry Hume

It is with deep sadness that we announce the loss of William J. Hume, known as Jerry Hume, former Chairman…

Why We Should Be Teaching Students Economic Literacy

Ted Tucker, Executive Director, Foundation for Teaching Economics October 26, 2022 More high schools are offering courses on personal finance…