The new role for water markets in the twenty-first century

Abstract

We have learned a great deal since the end of the 1980s. Water markets have shown the potential to help countries and regions deal with their growing water shortages. However, to be effective water markets need to have wide acceptance by stakeholder and be designed so that water can be traded at low transaction costs. Third party impacts tend to be the most difficult issues that must be addressed when water markets are being designed. This involves both downstream users and environmental impacts. After over two decades of trial and error Australia has done a good job of adjusting their institutional arrangements to address most third party impacts. Luckily local water markets tend not to have many third party impacts as illustrated by the village level markets in Oman.