Institutions can emerge and evolve to solve environmental and natural resource problems. However, these resources are often characterized by scientific complexity, a lack of complete property rights, and dispersed benefits. Aligning private and social benefits and costs can increase total social welfare, but also requires increased control over the resource, which is costly. Increased control comes through strengthening property rights, which may be held by the state, by local user groups, individuals, or a combination. This dissertation explores how knowledge of the physical properties of a resource, and in particular groundwater, is critical to understanding the incentives to engage in bargaining over property rights, lobbying, or other management program.

The first chapter explores how properties of an aquifer influence the incentives of groundwater irrigators to engage in collective management. Using data from Kansas, counties with high hydraulic conductivity, a measure of how "common" the groundwater resource is, are shown to benefit more from management, among other results. The chapter demonstrates the benefit of directing management based on physical properties of a resource.

The second chapter explores how the separation of ground and surface water rights can create differences in preferences over policy alternatives, expressed through political channels. Economic efficiency may not be the key determinant of outcomes as affected parties interact with politicians and administrative agencies. An economic model is introduced to explore the political choice of the environmental good, instruments to be used (quantity restrictions, subsidies or taxes), or how costs will be distributed. A case analysis of water-trading/access restrictions on copper mining firms in northern Chile's Antofagasta Region illustrates the key points of a theoretical framework.

The third chapter presents interdisciplinary work that explores how outflows benefitting ecosystems may warrant maintaining groundwater tables at higher levels than private economic incentives would indicate. A case in northern Chile is examined. Here, a wetland and lacustrine environment and a village dependent on that environment disappeared due to water extraction for use in mining. The paper explores how economics and hydrology illustrate the inherent tradeoffs in this type of development.