In 1995 Arizona implemented a set of rules designed to require new development to use “renewable” (non-groundwater) water supplies. Many of the key provisions of the rules were developed by the regulated community itself, including the creation of a legal mechanism—known as the Central Arizona Groundwater Replenishment District—designed to aid compliance with the rules. The District enables developers to pay a small fee to pass the burden of acquiring renewable water supplies for their proposed development to the District. Over the last 15 years, the District has amassed a considerable debt obligation to acquire renewable water supplies on behalf of its thousands of member communities, creating a yet-undefined future water supply acquisition cost for an estimated 200,000 homeowners in central Arizona. This research explores the political economy behind the creation of the District and characterizes its formation using a Nash model of cooperative negotiation with bargaining power.


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