Markets for Water: Time to Put the Myth to Rest?

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any economists and others argue that theproper solution to water allocation is toallow markets to play the major role inreallocating water among users and in other aspectsof water management (Anderson and Snyder 1997;Easter, Rosengrant, and Dinar 1998; Gray 1996;Kaiser 1996; Sterne 1997; Teerink and Nakashima1993; Thompson 1993). They argue that privateproperty and markets are nearly painless means forresolving the increasing problems of water allocation,distribution, and preservation. Elsewhere I haveargued at length against this conclusion (Dellapenna2000). I summarize the reasons for these conclusionshere.That many professional economists championprivate property and markets (or “market-likemechanisms”) as water management tools is onlyto be expected. The study and employment ofmarkets is, at least in western economics, theirstock in trade. Markets, they tell us, will introducethe necessary flexibility into water managementwhile simultaneously fitting the appropriateintegration of water quality and water quantityissues into a single managerial model. They alsoexpect that the market results will be accordedthe strong presumption of validity that market-based allocations are accorded in capitalistsocieties. The presumption of validity for marketoutcomes has only been strengthened by the utterfailure of classic socialism. Still, actual marketsin free-flowing water have always been extremelyrare in practice (Israel and Lund 1995; Kloezen1998; McCormick 1994).In fact, when markets for water become a subjectof public concern, the debate often becomes highlyemotional, a good deal of the emotion going againstmarkets (Woodhouse 2003). To the extent thatmarkets for water have existed, they have been forthe transfer fairly small-scale amounts among similarusers (Kloezen 1998; Thompson 1993). Watermarkets have seldom been used to accomplishsignificant changes in the ways water is used. Yet,in the face of the existing and impendinghydropolitical stresses on water managementregimes, this is precisely the sort of change that willbecome necessary. When so-called markets are setup in order to bring about major changes in the time,place, or manner of use, they in fact have functionedonly through the rather heavy-handed interventionof the state (Dellapenna 2000; Pigram 1997). Sucharrangements hardly qualify as a market at all.If markets for water are so good, why are theyso seldom used? Supporters of markets seldomaddress this question except to denigrate their criticsas holding cultural, religious, even mystical prejudicesabout water (Brown 1995). This attitude, however,overlooks that water is not like other resources.