Water markets in federal countries: comparing coordination institutions in Australia, Spain and the Western USA

Abstract

Water markets are a prime example of decentralised resource allocation, yet their success often depends on strong coordination institutions, particularly as water is redistributed across sectors and political borders. The territorial division of authority in federal countries creates potential intergovernmental coordination challenges in river basins shared by multiple jurisdictions. This paper compares water markets and associated institutional reforms in Australia, Spain and the Western USA—three countries with long-standing experience with water markets but different approaches to distributing authority and intergovernmental coordination. We conduct an institutional mapping of national and sub-national roles in market-based water allocation reforms across the three countries and employ process tracing techniques to examine coordination challenges and institutional responses associated with water markets. We find that (1) policy goals addressed by water markets vary across—and within—the three countries, reflecting differences in the level of decentralisation, but (2) all three countries have required capable coordination institutions to address the distributional conflicts associated with water markets. Coordination institutions can take multiple forms and include both formal and informal venues for planning, financing and conflict management matched to local conditions.