The Impact of Institutional Path Dependence on Water Market Efficiency in Victoria, Australia

Abstract

Water governance in Australia’s irrigation sector has undergone substantial change over the last three decades. In part, this change has been the result of a shift in intellectual thinking regarding the pricing and allocation of irrigation water with a move away from primary reliance on government to undertake these activities and a greater dependence on markets. Institutional change will be impacted on by the existence of institutional path dependence created by previous frameworks. Path dependence arises because actors are unable to predict the exact outcome of decisions made at different junctures in time. Individual decisions may be temporally remote but will impact the subsequent path of change as a result of lock-in. In turn, institutional path dependence may create some rigidity within new institutional arrangements. Evidence of current trading restrictions on Victorian water markets illustrates this outcome. These restrictions may not be permanent, but in the short-run they have limited, to some extent, the gains accruing from water trading.