Water and Markets Flow Together in Aquanomics

Water shortages and poor water quality are looming threats in many developing countries. By contrast, water supplies and water quality have increased in much of the United States due to a specific policy innovation: water markets and market-like exchanges. The growing participation of wildlife agencies and conservationists in water markets and exchanges is especially fascinating, considering that many hardcore environmentalists disdain markets. This trend is examined in detail in the new Independent Institute book, Aquanomics: Water Markets and the Environment, edited by B. Delworth Gardner and Randy T. Simmons.

How big a deal are water markets for wildlife agencies and conservationists? From 1987 to 2007, more than 2,500 transactions involving so-called “instream rights” were completed in Arizona, Colorado, Idaho, Nevada, Oregon, and Wyoming, with total expenditures exceeding $530 million. Clearly, these groups see benefits to buying rights to ensure water flows that support healthy ecosystems. And yet although these trends are encouraging, the contributors to Aquanomics explain that water markets face serious challenges: changes to federal and state laws, the expanding public-trust doctrine in the courts, and the assertions of new stakeholder rights—these are weakening the enforcement of contracts and property rights in water. For water markets to live up to their full potential, more regulators and conservationists must learn how a market-based system of water rights can reduce waste and pollution, and enhance water flow, water quality, and ecosystem management.

Aquanomics also examines other emerging topics in water policy, such as dam removal. It offers a framework to rationally evaluate proposals to decommission the estimated 79,000 dams in the United States deemed to pose “high” or “significant” risks in the event of failure. It also offers several valuable lessons regarding California water issues, such as the conflict over the Sacramento–San Joaquin River Delta and the encouraging history of groundwater management in the Los Angeles Basin; these are lessons applicable outside the Golden State.

Aquanomics offers both descriptive and prescriptive analyses that support the case for water markets and property rights. Filled with fresh insights, it will quench the thirst of readers interested in the world’s most vital natural resource.

Purchase Aquanomics: Water Markets and the Environment, edited by B. Delworth Gardner and Randy T. Simmons

Read the book summary.

[This post first appeared in the May 8, 2012, issue of The Lighthouse, the Independent Institute’s weekly newsletter. To receive The Lighthouse and other email notices from the Independent Institute, enter your email address here.]