Establishing tradable water rights: implementation of the Mexican water law

Abstract

Mexico passed a new water law in 1992 that shifted from state-managed water policy to a regulated market-oriented policy with tradable water rights. Water trading will initially be closely supervised by government agencies, but the law includes a number of provisions that will allow liberalization of water markets as water users become more involved in operation and management of water and gain experience in water trading. Incentives for the Mexican water policy reforms include the growing economic value of increasingly scarce water; the rising budgetary costs from highly subsidized capital development and operations and maintenance for irrigation and water supply systems; and general liberalization of the Mexican economy, which has raised the cost of maintaining relatively inflexible water allocation systems that cannot respond to changing incentives.