Water Markets: Transaction Costs and Institutional Options

Abstract

Abstract The costs involved in the transfer of property, or transaction costs, can significantly affect the capacity of any market to operate efficiently. If water marketing is to achieve its full potential, markets must be designed to minimize transaction costs. Water marketing may lead, however, to efficiency gains, even if transaction costs are high. Moreover, increasing water scarcity will raise the welfare gains from trade relative to these costs, as the value of water rights increases. Transaction costs can be lowered by technological advance and by institutional design. It can also be expected that transactions costs will fall as the market matures, as learning by doing has its effect.