Abstract: Nine papers present policy alternatives for water marketing and rethink traditional political boundaries as they relate to water. Papers examine water markets and the problem of shifting paradigms (Barton H. Thompson Jr.); institutional constraints on transboundary water marketing (James L. Huffman); whether water regulation must be centralized (David D. Haddock); water rights regulation, political incentives, and federalism (Henry N. Butler and Jonathan R. Macey); increasing efficiency in water markets in the western United States (Charles W. Howe); the law, economics, and politics of interstate marketing of Central Arizona Project water (Jeffrey R. Fuller); transborder water trading among the Australian states (Gary L. Sturgess); environmental quality, biological envelopes, and river basin markets for water quality (David W. Riggs and Bruce Yandle); and an efficient and ecological alternative for protecting the Edwards Aquifer (Ben F. Vaughan IV and Peter M. Emerson).

Abstract: The Central Valley Project Improvement Act dramatically changes federal water policiens in California and may serve as a model for reforms throughout the western United States. This paper details key CVPIA provisions, including water markets, tiered prices, and water for environmental uses, and analyzes potential implications for a subset of affected farmers.

Abstract: In the area of fresh surface water resources, which are gradually becoming more scarce, sustainable utilization implies the need for policies aiming to provide adequate water supplies for everyone in both national and international contexts. Many international river basins are shared without any formal intergovernmental agreement, while bilateral agreements guaranteeing amicable cooperation amount to a handful. This paper presents a simple economic-ecologic model within which it examines input-output controls, social input prices, bilateral water trade, a water market for all water users, and a fixed water allocation agreement, as possible water policies for cross border river water sharing. All of these policies can satisfy the conditions for maximum joint economic benefits, while simultaneously working towards maintaining the functional integrity of river ecosystems. In theory, therefore, these policies are of equal use. There are, however, several costs associated with policy administration which are hidden and must explicitly be taken into account. The analysis indicates that bilateral water trade can prove a workable, efficient and sustainable policy for cross border water sharing.

Abstract: We can multiply the value of output from limited natural water supplies by allocating them to higher uses. To this end we need a market in raw water, but existing markets work badly, for several reasons. Sellers are undermotivated, absent taxes or debt. Free groundwater subverts the pricing of surface water. Loss of elevation, and damage from effluents, and instream uses are not charged for. Obsolete subsidies abound; obsolete entitlements dominate allocation. Some trades extinguish public rights. Rent-seeking distorts allocation. Needed public agencies have been subverted by organized land speculators. Recommendations are given.

Abstract: Ex post evaluation of economic projections validates our shared understanding of economic methodology and methods. The recent economic history of Central Arizona Project (CAP) agriculture reveals the predictive power of economic reasoning and its policy impotence within a political environment intent on obtaining its share of federally allocated water. The financial inability and unwillingness of large irrigation districts to pay for CAP water under existing federal rules produced an urban tax- and rate-payer controlled CAP decades earlier than planned. Yet irrigation districts remain a large residual buyer of CAP water under new pricing and allocation rules. Unfortunately, water markets remain an underutilized and distrusted tool in the water development game.

Abstract: For 15 years Chile has been the leading international example of pro-market policies for water resources, and its 1981 Water Code has recently been touted as a model for other countries to follow Water markets are controversial in both theory and practice: their potential benefits include greater efficiency and flexibility of water use and less state intervention and expenditure; while their drawbacks include social and environmental externalities, vulnerability to high transactions costs and other common examples of "market failure." No country has taken the experiment as far as Chile since its Water Code privatized water rights, reduced state administration, and attempted to stimulate a free market in water rights. The results have been mixed and uneven. The lesson of the Chilean case is that setting up water markets is harder and more complicated than it may seem, even in the fairly simple arena of irrigation transfers.

Abstract: Eleven papers analyze the political economy of water, highlighting modest initial successes with emerging wholesale water markets and with retail water rate design based upon marginal cost. Darwin C. Hall considers economic instruments to mitigate water scarcity. Thomas C. Wegge, W. Michael Hanemann, and John Loomis compare the benefits and costs of water resource allocation policies for California's Mono basin. Benedykt A. Dziegielewski discusses the long term forecasting of urban water demands. Daniel M. Rodrigo, Timothy A. Blair, and Brian G. Thomas address integrated resource planning and reliability analysis in a case study of the metropolitan water district of southern California. Hall focuses on calculating marginal cost for water rates. Hall and Hanemann discuss urban water rate design based on marginal cost. Clifford S. Russell and Boo Shig Shin examine the theory and practical limitations of public utility pricing and, in a separate paper, present an application and evaluation of competing marginal cost pricing approximations. Ariel Dinar, David Sunding, and David Zilberman examine changes in irrigation technology and the impact of reducing agricultural water supplies. Kathleen A. Miller discusses water banking to manage supply variability. Bonnie G. Colby focuses on water markets as an important mechanism to address water scarcity and highlights some policy challenges these markets pose.

Abstract: Analyzes the functioning of groundwater markets in Pakistan and their impact on agricultural productivity and incomes. Considers the factors affecting development of groundwater market and uses district level data to analyze the effects of the physical, social, and agroeconomic environments on the density of private tubewells and the activity of water markets. Presents a more detailed analysis of who participates in groundwater markets, identifying the determinants of tubewell ownership and groundwater purchase at the micro level, using household survey data. Describes how groundwater markets operate, including the physical, social, and contractual relationships between participants. Examines the reliability of access to groundwater that such markets afford. Addresses the impact of groundwater markets on productivity and incomes, and compares the extent of irrigation surplus attributable to water from canals, purchased groundwater, and own tubewells. Draws out implications for policy and research.

Abstract: Investigates the performance of water markets in improving water allocation, by examining specific case studies in Chile, one of the few countries that has encouraged markets for water. In order to assess the impact of water markets and the transaction costs involved, focuses on four river valleys in Chile: the upper Maipo, the Elqui, the Limari, and the Azapa. Analyzes the sale of water use rights in the Elqui and Limari valleys, during the years 1986 to 1993 to determine the gains from trade from market transfers. Provides some observations on water policy in Chile. Annexes describe the four river basins used as case studies; present crop budgets used in valuing water for the gains-from-trade analysis; and display the questionnaire used in a survey of farmers who had participated in market exchanges.

Abstract: Irrigation water from a southeastern Colorado county has been sold to distant municipalities. The county's junior water right delivered limited and uncertain water supplies which were used on relatively poor soils. The ability of water markets to allocate water to the highest-valued use was addressed by assessing the direct foregone benefits of the transfer using deterministic and discrete stochastic sequential (DSSP) programming models. Crop mix predicted by the DSSP followed observed regional patterns. The DSSP was thus used to derive regional water demand from which foregone value was estimated. Direct regional foregone agricultural benefits were relatively low--due to uncertain water supplies and unproductive soils--indicating the market selected a low-valued supply for transfer.

Abstract: Most water projects suffer from losses in conveyance. Because conveyance has public good characteristics, investment in reducing conveyance losses must be provided by a central authority. This paper develops a spatial model to determine optimal conveyance investment, water allocation, and investment in firm-specific conservation technology. The efficiency and distributional characteristics of the optimal solution are compared to projects with (1) well-developed water markets and (2) spatially uniform water prices, both with sub-optimal conveyance. A numerical illustration is provided.

Abstract: The question addressed by this study is how a large urban water district can best respond to a drought. Using a computer model of a representative district, we find that a combination of conjunctive use and water marketing is well over an order of magnitude cheaper than the traditional alternative of constructing new storage capacity. The indicated cost saving can be explained by the intermittent nature of the transfer, corresponding to the intermittent demand. Comparing costs to benefits, the consumer-surplus loss otherwise entailed by raising prices to cut back on consumption in the event of a drought, we find that construction of new storage does not pass a benefit/cost test, but introduction of conjunctive use/water marketing does. Coauthors are David Fullerton, Nile Hatch, and Peter Reinelt.

Abstract: This paper evaluates competing models of input use for two inputs, surface water and land, in central California agriculture. Applying a model of the multiproduct firm, a variable input model is compared to a fixed input model using model specification tests. Test results support the fixed input model for both surface water and land. The finding that surface water is a quantity-rationed input addresses an important water policy issue, implementation of the Central Valley Project Improvement Act. Water rationing has implications for three key provisions of the act involving water price increases, water marketing, and water supply restrictions.

Abstract: Twelve papers cover the traditional field of irrigation and drainage. Papers focus on water issues in the Middle East and North Africa; China's Yellow River Basin; the World Bank's irrigation and drainage experience and the attitudes of water resource professionals toward problems in this area; and general aspects of water markets, observations on their suitability for several regions of the world, and case studies of Chile, the western United States, Mexico, and Spain. Contributors are mainly economists. Coeditors are K. William Easter, Walter J. Ochs, and Sandra Giltner.

Abstract: The question addressed by this study is how a large urban water district can best respond to a drought. Using a computer model of a representative district, we find that a combination of conjunctive use and water marketing is well over an order of magnitude cheaper than the traditional alternative of construction of new storage capacity. The indicated cost saving can be explained by the intermittent nature of the transfer, corresponding to the intermittent demand. Comparing costs to benefits, the consumer surplus loss otherwise entailed by raising prices to cut back on consumption in the event of a drought, we find that construction of new storage does not pass a benefit/cost test, but introduction of conjunctive use/water marketing does.

Abstract: The question addressed by this study is how a large urban water district can best respond to a drought. Using a computer model of a representative district, we find that a combination of conjunctive use and water marketing is well over an order of magnitude cheaper than the traditional alternative of construction of new storage capacity. The indicated cost saving can be explained by the intermittent nature of the transfer, corresponding to the intermittent demand. Comparing costs to benefits, the consumer surplus loss otherwise entailed by raising prices to cut back on consumption in the event of a drought, we find that construction of new storage does not pass a benefit/cost test, but introduction of conjunctive use/water marketing does.

Abstract: Eight papers, resulting from a meeting of the British Columbia Chapter of the Canadian Water Resources Association in 1992, discuss potential problems for water marketing within the context of an integrated North American free trade zone. James L. Huffman presents a brief history of North American water diplomacy. Rodney T. Smith examines the economic structure of contracts for international water trades. Jon R. Johnson focuses on Canadian water and free trade. Gary Fritz and Matthew J. McKinney consider Canadian water export policy and continental water marketing. Micha Gisser evaluates a tool for continental water marketing along the U.S. Mexican border. Roberto Salinas Leon addresses problems and prospects for a viable water market in Mexico. Huffman assesses a North American water marketing federation. Anthony Scott considers how water institutions work among governments, within agencies, and between individual users.

Abstract: In addition to improving the allocative efficiency of water use, water markets may reduce irrigation-related water quality problems. This potential benefit is examined with a nonlinear programming model developed to simulate agricultural decision-making in a drainage problem area in California's San Joaquin Valley. Results indicate that a 30 percent drainage goal is achievable through improvements in irrigation practices and changes in cropping patterns induced by a water market. Although water markets will not generally achieve a least-cost solution, they may be a practical alternative to economically efficient, but informationally intensive, environmental policies such as Pigouvian taxes.

Abstract: Water supply organizations control a large portion of agricultural water rights in the western U.S. This paper applies cooperative and club theory models to analyze the response of these organizations to potential rural-to-urban water transfers. Applicati on of the models is to a proposed water trade between Southern California's Imperial Irrigation District and Metropolitan Water District. The analysis reveals that substantial intraorganizational conflict can emerge in response to specific transfer proposals, and this conflict may be sufficient to defeat or delay otherwise benefic ial transfers. Poorly defined property rights and a failure to align these rights with operational control in the water supply organization are pinpointed as key sources of conflict.

Abstract: Most of the effort being expended to revise Western water policy concerns the maintenance of instream waters to the exclusion of traditional diversionary interests. Absent from the economics literature is a theoretical treatment addressing the interface between diversionary and instream water uses. At issue is the potential for refining market operations to accomplish efficient allocation in the presence of both diversionary and instream uses. Optimization methods are employed to examine this issue in a highly generalized framework. If a specific structure is adopted, markets and other incentive-based policies are demonstrated to be capable of efficient water allocation.

Abstract: The debate over privatizing and water markets has moved back and forth for decades between the "I" and the "We" perspectives. Rather than either/or, a balanced "I&We" view of water institutions is needed. West is meeting east in water law. Public interest needs must be satisfied in appropriate decision forums, but marketing may prove a social improvement when used as a supplement. Balancing an "I&We" institution involves establishing an acceptable or tolerable level of interference through judicious mixing of state, common and private property regimes. Third-party effects are eliminated as mutual gain arises in a variety of decision forums.

Abstract: Surface water marketing, as it is conducted in Texas, is assessed to identify areas of success as well as those meriting improvement. Overall, surface water markets have assisted the State in responding to changing conditions, but policy revisions are needed to repair the deficiencies of existing institutions. Concerning the extension of market policy to groundwater management, it is argued that the absolute ownership doctrine employed for Texas groundwater should be removed in favor of a market-oriented groundwater code derived from surface water law and experience. Recommendations for modifying both surface water and groundwater law.