Water Scarcity and Water Markets: A Comparison of Institutions and Practices in the Murray-Darling Basin of Australia and the Western US

ICER Working Paper No. 28/2010

44 Pages Posted: 19 Dec 2010

See all articles by Gary D. Libecap

Gary D. Libecap

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management; University of Arizona - Karl Eller Center; National Bureau of Economic Research (NBER); PERC - Property and Environment Research Center

R. Quentin Grafton

Australian National University (ANU) - Centre for Resource and Environmental Studies (CRES); Australian National University (ANU) - Crawford School of Public Policy

Clay Landry

affiliation not provided to SSRN

R.J. O’Brien

affiliation not provided to SSRN

E.C. Edwards

affiliation not provided to SSRN

Date Written: December 17, 2010

Abstract

Water markets in Australia’s Murray-Darling Basin (MDB) and the US west are compared in terms of their ability to allocate scarce water resources among competing uses. Both locations have been in the forefront of the development of water markets with defined water rights and conveyance structures to assist in the reallocation of water across competing demands. They also share the challenge of managing water with climate variability and climate change. As these two markets occur in developed, wealthy countries, their experiences in water markets with different water rights (appropriative, riparian and statutory rights) provide ‘best-case’ scenarios of what institutional arrangements work best, indicate which are less effective, and demonstrate what might be possible for greater use of water markets elsewhere in the world. The paper finds that the gains from trade in the MDB is worth hundreds of millions of dollars in per year, total turnover in water rights exceeds $2 billion per year and the volume of trade accounts for over 20% of surface water extractions by irrigators. In the key states of Arizona, California, Colorado, Nevada, and Texas, trades of committed water annually range between 5% and 15% of total state freshwater diversions with over $4.3 billion (2008 $) spent or committed by urban buyers between 1987 and 2008. Despite the clear benefits of water markets in both locations, there are on-going restrictions to trade that limit the potential gains and also third-party effects from use that require resolution.

Suggested Citation

Libecap, Gary D. and Grafton, R. Quentin and Landry, Clay and O’Brien, R.J. and Edwards, E.C., Water Scarcity and Water Markets: A Comparison of Institutions and Practices in the Murray-Darling Basin of Australia and the Western US (December 17, 2010). ICER Working Paper No. 28/2010 . Available at SSRN: https://ssrn.com/abstract=1727350 or http://dx.doi.org/10.2139/ssrn.1727350

Gary D. Libecap (Contact Author)

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

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HOME PAGE: http://www.esm.ucsb.edu/people/usernew.asp?user=glibecap

University of Arizona - Karl Eller Center ( email )

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HOME PAGE: http://www.bpa.arizona.edu/~libecap

National Bureau of Economic Research (NBER)

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PERC - Property and Environment Research Center

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R. Quentin Grafton

Australian National University (ANU) - Centre for Resource and Environmental Studies (CRES) ( email )

Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://cres.anu.edu.au/~qgrafton

Australian National University (ANU) - Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Clay Landry

affiliation not provided to SSRN ( email )

R.J. O’Brien

affiliation not provided to SSRN

E.C. Edwards

affiliation not provided to SSRN

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