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tn_II) .;.) ~ and vest it in overlying landowners and other water users. Overlying owners, however, would be treated equally without regard to history of use. Present users might still be favored over future users, however, depending on the judicial construction 01 the requirement of apportion- ment in times of shortage. Physical-Hydrologic and Environmental Impacts Codifying existing law, by itself, would have no physical-hydrologic or environmental impacts apart from the current situation. CONCLUSION Nebraska is in a unique and enviable position in comparison with most states when it comes to legal and institutional barriers to change in the structure of groundwater property rights. The clear statements in Nebraska law indicating that groundwater is publiC property give the legisla- ture great latitude in developing a fair and equitable system for allocating groundwater among competing users. Many of the possible allocation mechanisms which might be adopted, however, would result in the creation of vested private property rights which would limit future flexibility of action. Any regulation of the use of groundwater must observe the limits set by these private property rights. On the other hand, if intelligient decisions are to be made regarding the use of groundwater, it is necessary that the parameters of the property right be defined with some degree <?l certainty. The tension that must be resolved IS between the certainty of a system of private groundwater property rights and the flexibility of a system of publiC groundwater property nghts. This tension is exacerbated by the fact that any redefinition of property rights means that some citizens will gain more than others, although there need not necessarily be any losers. The fact remains, however, that many individuals and groups have equitable claims to the existing stock of groundwater, and a groundwater property rights system necessarily determines which equitable claims will be satIsfied and which will not. FOOTNOTES 1. Economics is the science of human choice in a world where resources are limited and wants are insatiable. In addressing the economic impact of various water policy 2 alternatives it is necessary to locus both on the problem of resource utilization and on the problem of want satisfaction, topics subsumed within the broad label of eco- nomic efficiency. Economists commonly distinguish between productive efficiency and allocative efficiency. Productive effi- ciency is achieved when resources are combined to create the most output for the least cost. Thus. a change is productively efficient if it allows society to produce more goods at the same cost or the same amount of goods at a lower cost. Allocative effi- ciency, in contrast, relates to the distribution of produced goods among the members of society, whether presently living or yet to be born. A change is allocatively efficient if it will increase the satisfaction of at least one member of society without decreasing the satisfaction of another (pareto superiority), or if it will increase the satisfaction of some members of society more than it will de- crease the satisfaction of other members of society (Kaldor-Hicks efficiency). An eco- nomic system is thus said to be efficient if it allocates existing resources so as to max- imize the production derived from them,and if it distributes the goods produced in a manner that maximizes consumer welfare. Equity refers to how society's wealth is distributed among the members of society. Changes in equity are reflected in changes in the distribution of wealth. Evaluation of equity impacts is difficult, however, as equity is essentially a philosophical concept, not an economic one. An efficient transaction, for instance could be thwarted if an individual was required to negotiate with several parties, each of whom would be negligibly impacted by the proposed conduct. Efficiency gains often can be offset by such transactions, thereby effectively blocking the efficiency gain. See generally Calabresi, Transaction Costs_ Resource Allocation and liability Rules - A Comment, 11 J LAW & ECON 67 11968). This is a particular problem where legal rules are unclear making completely accurate information available only at the cost of ex post litigation. The relationship between effiCiency and equity must be understood. Efficiencygains are independent of equity impact. Thus, if A can make more efficient use of water owned by B than can B himself, it is efficiency to transfer the water to B. A need not pay for the water for the transfer to be efficient. Whether A is required to pay lor the water or 3 4 5. 6 3.19