1. The foundation of the tragedy of the commons and the tragedy of the anticommons is the separation of exclusion rights and use rights.
2. The tragedy of the commons occurs when parties posses multiple use rights and no exclusion rights. For example, you can divert water from the stream, but you can’t keep your neighbor from also diverting water from the same source.
3. The tragedy of the anticommons occurs when multiple exclusion rights exist whether or not the excluding party possesses use rights. For example, you can legally object to your neighbor’s water diversion, even though you don’t possess a water right.
Under the West’s prior appropriation doctrine, we experience the latter of the two in the water market: tragedy of the anticommons. Almost all water right transactions require a state approved change application and these water right changes provide multiple parties the opportunity to exercise their exclusion or veto rights. As a result transaction costs remain high, and reallocation of water rights to higher valued uses is occurring slowly.