Expanding Water Markets in the Western United States: Barriers and Lessons from Other Natural Resource Markets

Abstract

This article identifies key barriers to the expansion of surface water markets in the western United States and examines the lessons learned from the development of market-based management of other resources. We argue that the most salient barriers to water market development are conducting and verifying trades of environmental goods and services and the challenges associated with the political economy of defining, altering, and transferring property rights. We review the extensive economics literature on markets for fishing rights, air pollution abatement, and water quality; discuss the lessons learned from experience with these markets; and suggest specific reforms for increasing the role of markets in water resource management, including minimizing the cost of trades and implementing strategies to address political opposition.