Water markets as a response to scarcity

Abstract

Existing water governance systems are proving to be quite ineffective in managing water scarcity, creating severe risk for many aspects of our societies and economies. Water markets are a relatively new and increasingly popular tool in the fight against growing water scarcity. They make a voluntary exchange possible between interested buyers and sellers of water rights. This paper presents direct evidence from seven water markets around the globe to document key economic and ecological challenges and achievements of water markets with respect to water scarcity. We specifically approach water markets as localized cap-and-trade systems, similar to those for carbon emissions. We examine whether water use remains within the set limits on use of water rights (i.e., under the cap), the degree to which water markets help protect the health of ecosystems and species, and whether (as predicted by economic theory) the explicit pricing of water is accompanied by improving efficiency, as less productive water users decide to sell water to more productive water users.

The Global Food‐Energy‐Water Nexus

“…Subsequent work has leveraged this information to explore both link and flux predictions, population, geographical distance, and GDP strongly controlling link activation and the fluxes along those links (Tuninetti et al, ). Econometric analyses have been used to investigate the extent to which water is a source of comparative advantage (Debaere et al, ), in addition to the classic factors (i.e., labor, capital, and land, Wichelns, , ) typically considered by international trade theories. Virtual water was found to be a moderate source of comparative advantage with water‐rich countries exporting more water‐intensive products (Debaere et al, ).…”

Model Water Transfer Mechanisms as a Drought Preparation System

“…Water banks are institutional structures allowing water right holders to lease, and interested parties to purchase water (Michelsen 1994). Statebrokered water transfers, or Markets by Agency (MBAs) (Ballestero et al 2002) are generally not an appealing option during times of 'normal' water supply and the appropriateness of their use has been questioned (Dellapenna 2000;Ballestero et al 2002;Zetland 2009;Debaere et al 2014). Despite substantial efforts to study and facilitate their functioning, free-market reallocations of bulk water have proven to be too difficult to reallocate substantial quantities of water in short periods of time, because of political, administrative, social, implementation, monitoring, and enforcement costs (Gould 1988;Barthold 1994;Bauer 1997;Howe 2000;Hennessy 2004;Krutilla 2010;Dustin and Aylward 2012).…”

A Water Rights Trading Approach to Increasing Inflows to the Aral Sea

“…Water rights trading among irrigation sites allows for additional gains from moving water across irrigation sites due to the heterogeneity of irrigated crop production and the possibility that more productive irrigation water users purchase the rights (Debaere et al, 2014). Although administrative water management emphasizes the equity of water sharing, it has often led to water overuse and misallocation and poor quality of public agency services (Dinar et al, 1997).…”

“…Although administrative water management emphasizes the equity of water sharing, it has often led to water overuse and misallocation and poor quality of public agency services (Dinar et al, 1997). Under water rights trading, the value of water is determined through the trade relationships among the users (Rosegrant et al, 2000;Ringler et al, 2004) and reflects not only delivery costs but also scarcity and opportunity costs of water (Rogers et al, 2002), thus incentivizing water users not to wastewater (Debaere et al, 2014). Moreover, equity in water distribution can be addressed under water rights trading through compensation to users with low water use efficiency who voluntarily transfer their water use rights to more productive users (Dinar et al, 1997).…”