Alternative structures for water rights markets

Abstract

This paper examines the design of systems of marketable permits for water consumption from natural watercourses. The most important considerations for the work reported upon here are those associated with (1) uncertainty of future streamflows and economic conditions, (2) locational issues, and (3) efficient and effective functioning of the markets. Particular attention is given to the problem of implementing marketable rights systems in regions presently following the riparian doctorine. In these regions the most important design decisions include the basis of definition of permits, the means for initially distributing them, the type of market mechanism used for their transfer after they are issued, and the restrictions placed on their use and transfer. These design decisions are examined here with respect to program objectives, including economic efficiency, equity, ease of administration and implementation, and maintenance of instream flows. Alternative approaches to the design problems are discussed, and trade‐offs implied by the decisions are identified.