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Water marketing and property right reform are intertwined. Water markets are advocated as a solution for water scarcity, but changes in water rights are often required if the scope of water marketing is to expand. This is true in many countries, including (but not limited to) the United States and Australia. The focus here is on the United States. So far, water marketing in the Western United States is not producing long-run reallocation on the scale expected. The chief impediment is the complexities in existing water rights. An important distinction is between a property right to extract water and put it to use versus a contractual right to receive water from a supply organization. In the United States, the property right to water is a unique form of property. Unlike land, it is a right of use, not ownership; the quantity afforded by the right is incompletely specified; and the ability to transfer it is constrained by the obligation to avoid harm through the externality of return flows and also by unreliable historical records of rights. These constraints are often relaxed for short-term transfers (leases) of a property right lasting only a year or two. Also, these constraints generally do not apply to a contract right to receive water. Thus, most of the surface water transferred in the United States is either contract water moving within supply system boundaries or short-term leases of appropriative rights. These transfers tend to provide short-run flexibility for water users rather than long-run reallocation. For more significant long-run reallocation of water, some modification of the property right to water is essential. Devising a politically acceptable way to make the needed changes is the ultimate constraint on water marketing.

From earliest times, at least in arid and semi-arid regions, law has been used to allocate water to particular users, at particular locations, and for particular uses, as well as to regulate the uses of water. In the early 21st century, such laws are found everywhere in the world. While the details of such systems of water law are specific to each culture, these systems, in general terms, conform to one of three basic patterns, or to some combination thereof. The three patterns can be understood as a system of common property, a system of private property, or a system of public property. In a common property system, each person is free to use water as he or she chooses so long as the person has lawful access to the water source and does not unreasonably interfere with other lawful users. Such systems were common in humid regions where generally there was enough water available for all uses, but these break down when demand begins to outstrip supply frequently. Private property systems, more common in arid and semi-arid regions, where water is generally not available to meet all demand on the water sources, is a system that allocates specific amounts of water from an identified water source, for a particular water use at a particular location, and with a definite priority relative to other uses. The problem with such private property systems is their rigidity, with transfers of existing water allocations to new uses or new locations proving difficult in practice. In Australia, the specified claim on a water source is defined not as a quantity, but as a percentage of the available flow. Despite the praise heaped upon this system, it has proven difficult to implement without heavy government intervention, benefiting only large irrigators without adequately addressing the public values that water sources must serve. In part, the problems arise because cheating is easier in the absence of clear volumetric entitlements. The public property systems, which has roots dating back centuries but is largely an artifact of the 20th century, treats water as subject to active public management, whether through collaborative decision-making by stakeholders (a situation that is also sometimes called “common property” but is actually very different from the concept of common property used here), or through governmental institutions. Public property systems seek to avoid the deficiencies of the other two systems (particularly by avoiding the incessant conflicts characteristic of common property systems as demand approaches supply and the rigidity characteristics of actual private property systems), but at the cost of introducing bureaucratized decision making. In the late 20th century, many stakeholders, governments, and international institutions turned to market systems—usually linked to a revived or new private property system—as the supposed optimum means to allocate and re-allocate water to particular uses, users, and locations. Before the late 20th century, markets were rare and small, but institutions like the World Bank set about to make them the primary mechanism for water allocation. Markets, however, proved difficult to implement, at least without transferring wealth from relatively poor users to more prosperous users, and therefore produced a backlash in the form of support for a human right to water that would trump the private property claims central to water markets. The protection of public values, such as ecological or navigational flows, also proved difficult to maintain in the face of the demands of the marketplace. Each of these systems has proven useful in particular settings, but none of them can be universally applied.

Groundwater is a critical natural resource, but the law has always struggled with it. During the 19th and early 20th centuries, the common law developed several doctrines to allocate groundwater among competing users. The groundwater revolution of the mid-20th century produced an explosive growth in pumping worldwide—and quickly exposed the flaws of these doctrines. Legal rules predicated on land and on surface waters could not meet the challenges posed by the common-pool groundwater resource: those of understanding groundwater dynamics, quantifying the impacts of pumping on other water rights, and devising satisfactory remedies. Unfettered by received property restraints, pumping on an industrial, aquifer-wide scale depleted and contaminated aquifers, regardless of doctrine. The groundwater revolution motivated significant legal developments. Starting in the 1970s, the Supreme Court of the United States adapted its methods for resolving interstate water disputes to include the effects of groundwater pumping. This jurisprudence has fundamentally influenced international groundwater law, including the negotiation of trans-boundary aquifer agreements. Advances in hydrogeology and computer groundwater modeling have enabled states and parties to evaluate the effects of basin-wide pumping. Nonetheless, difficult legal and governance problems remain. Which level of government—local, state, or national—should exercise jurisdiction over groundwater? What level of pumping qualifies as “safe yield,” especially when the aquifer is overdrawn? How do the demands of modern environmental law and the public trust doctrine affect groundwater rights? How can governments satisfy long-neglected claims to water justice made by Indigenous and minority communities? Innovations in groundwater management provide promising answers. The conjunctive management of surface and groundwater can stabilize water supplies, improve water quality, and protect ecosystems. Integrated water resources management seeks to holistically manage groundwater to achieve social and economic equity. Water markets can reward water conservation, attract new market participants, and encourage the migration of groundwater allocations to more valuable uses, including environmental uses. The modern law of groundwater allocation combines older property doctrines with 21st-century regulatory ideals, but the mixture can be unstable. In nations with long-established water codes such as the United States, common-law Anglophone nations, and various European nations, groundwater law has evolved, if haltingly, to incorporate permitting systems, environmental regulation, and water markets. Elsewhere, the challenges are extreme. Long-standing calls for groundwater reform in India remain unheeded as tens of millions of unregulated tube wells pump away. In China, chronic groundwater mismanagement and aquifer contamination belie the roseate claims of national water law. Sub-Saharan nations have enacted progressive groundwater laws, but poverty, racism, and corruption have maintained grim groundwater realities. Across the field, experts have long identified the central problems and reached a rough consensus about the most effective solutions; there is also a common commitment to secure environmental justice and protect groundwater-dependent ecosystems. The most pressing legal work thus requires building practical pathways to reach these solutions and, most importantly, to connect the public with the groundwater on which it increasingly depends.