Water Market Reforms for Water Resource Problems: Invisible Hands or Domination in Disguise?

Abstract

Many neoclassical economists account for water resource scarcity and related problems as a distortion of economic processes by political institutions, which, they claim, allow and encourage individuals to exercise arbitrary and capricious power. Arguing that competitive water markets can replace and thereby neutralize existing structures and distributions of power, these economists promote politically oriented policy prescriptions to reform water rights. It follows that neoclassical theory, which claims to explain the origins and development of political and economic interests, must account for the political support and opposition found for its own reform proposals. Neoclassical theory does not, however, account for the current experience in California with water right reform proposals. A case study of the development of private property rights to Kings River water demonstrates that, contrary to neoclassical theory, water rights institutionalize relations of power; preserving proprietary relations of power may supersede other economic interests in development when power is challenged.