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date: 01 October 2022

The Problem of Water Marketslocked

The Problem of Water Marketslocked

  • Michael HanemannMichael HanemannArizona State University & University of California Berkley

Summary

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.

Subjects

  • Management and Planning

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