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View: Abstract

A transactions cost approach to the theoretical foundations of water markets

Slaughter, R. 2009. A transactions cost approach to the theoretical foundations of water markets. Journal of the American Water Resources Association 45(2): 331-342.


Water marketing is frequently cited as a means of alleviating the stresses attached to re-allocation of water use. Frequently, marketing is suggested in a context that implies substitution of markets for the allocation based on the prior appropriation doctrine. This study examines water marketing from the perspective of a transactions cost approach. It examines the major challenges faced by any contract, and the alternative approaches to those challenges, with respect to water allocation. It finds that the most robust water market designs will be found in systems with sufficient property rights protection to support investment, sufficient hydrologic information to provide accurate analysis of third party effects, conjunctive management of surface and ground water, and a governance structure capable of administering the rules while not determining outcomes.