The Future of Water Markets: A Realistic Perspective

  • K. William Easter
  • Mark W. Rosegrant
  • Ariel Dinar
Part of the Natural Resource Management and Policy book series (NRMP, volume 15)


Although the experience with water markets is still limited, this situation is likely to change as more areas are faced with water scarcity problems and must look for better ways to reallocate this scarce resource. Under the appropriate conditions, it seems clear that water markets can be superior mechanisms for reallocating water to meet changing demand. A key reason to use water markets as the reallocation mechanism is because they give both potential buyers and sellers an incentive to conserve water and to participate in bringing about an equitable and efficient water reallocation. Markets also reduce the potential for rent-seeking by government officials. Trades can lead to permanent or temporary (during periods of drought) reallocations. If the reallocation of water rights is permanent, or between sectors, formal markets will need to be developed. In contrast, if the reallocation is only temporary and within the agricultural sector, then informal markets will usually work.


Transaction Cost Water Allocation Spot Market Option Market Water Market 
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  1. Garrido, A., 1997. “Economics of Water Allocation and the Feasibility of Water Markets in Agriculture,” paper presented at a workshop on Sustainable Management in Agriculture, Athens, Greece, Nov. 3–5.Google Scholar
  2. Hearne, Robert R. and K. William Easter, 1995. Water Allocation and Water Markets: An Analysis of Gains-from-Trade in Chile, World Bank Technical Paper No. 315, World Bank, Washington, D.C.Google Scholar
  3. Thompson, Barton H., Jr., 1997. “Water Markets and the Problem of Shifting Paradigms,” in Water Marketing — the Next Generation, T.L. Anderson and P.J. Hill (eds.), Rowman and Littlefield Publishers, New York.Google Scholar

Copyright information

© Kluwer Academic Publishers 1998

Authors and Affiliations

  • K. William Easter
    • 1
  • Mark W. Rosegrant
    • 2
    • 3
  • Ariel Dinar
    • 4
  1. 1.Department of Applied EconomicsUniversity of MinnesotaSt. Paul
  2. 2.International Food Policy Research InstituteWashington, D.C.
  3. 3.International Irrigation Management InstituteColombo Sri Lanka
  4. 4.Rural Development Departmentthe World BankWashington, D.C.

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