Question

Miller and Lux 25. Miller and Lus, large cattle ranchers in the late 1800s in California, had Riparian rights to the lower Kem River (past Bakersfield). Upstream appropriator James Haggin builds a canal near Bakersfield, diverts water in 1875, dries up the stream during the 1877-79 drought, and klls thousands of Miller and Lux's cattle downstream. Miller and Lux sue. This is a famous true story- for details, see https://en.wikipedia.org/wiki/Laux_v. Haggin Links to an cxtemal ste anks to an extemal site Suppose Miller and Laux have a MB of water: P 10-Q/4. The Kern River has 40 AF of water every year. Haggin has a MB of water P=40-202. Assume the MC of water extraction is 0. a. Determine the efficient allocation of water and specifically how much Haggin should receive Kern Riwer 40 A b. Since Haggin is upstream, he is physically able to take as much as he'd like, which is what caused the problem in the first place. In the absence of any negotiation, determine how much water he will take (recall his MC-0) and the resulting deadweight loss. Report the deadweight loss here: c. The Supreme Court ruled in Exvor of Miller& Lux, the downstream cattle ranchers, stating that their any adacent to-a-stream property owner) were superior to Haggin's appropriative rights (granted to rights. Thus, Haggin could only take water that Miller and Lux didn't need. If Haggin weren't upstream, what quantity of water would Miller & Lux take each year? (ie. what would they do if no one else used the stream) Explain why Haggin's presence changes the situation, even though Miller and Lux won in court and have the to take as much as they wish. Why is your answer above (what Miller &Lux would take in isolation) unlikely to prevail? Explain 19

Answer 1

a) MB, P= 10-Q/4 MB, P=40-2Q

Q1=40-4P Q2=20-P/2

Q=Q1+Q2

40-4P+20-P/2 = Q

60-P/2-4P = Q

40/3-2Q/9 =P
For efficient allocation, P=MC

40/3-2Q/9=0

Q=60

Haggin should recieve,

P=40-2Q

So P=MC

40-2Q=0

Q=20