Under the prior appropriation doctrine, water rights are better defined and specified than under the riparian doctrine, but diversion requirements left instream flows unprotected. Primarily in the 1970s and 80s, states sought to extend water rights to include instream flow (henceforth ISF) uses, allowing for new appropriations and market-based transactions to establish ISF rights within the private property system rather than using eminent domain or the public trust doctrine to bolster ISFs. Due to cumbersome administrative processes and other transaction costs, relatively few transfers or appropriations have occurred. Those that have often have rights subordinate (through legal qualifications) or at least junior to earlier diversion rights, leading critics to question the right-based preservation. This article rigorously analyzes the case of Colorado, one of the most active programs in the US within the most regimented water right systems. Despite relatively few acquisitions, the junior ISF appropriations have protected numerous miles of streams by 1) deflecting future diversionary rights, 2) requiring protection of any upstream transfers, and 3) reducing upstream withdrawals from existing diversion rights despite ISF’s junior status. The shift to diverting more downstream stems from additional investment in monitoring and enforcement which provides informational externalities to existing water right holders.

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