Water Markets In Theory And Practice: Market Transfers, Water Values, And Public Policy

port to the President and the Congress (1973) made a strong case for adopting measures designed to facilitate voluntary water transfers as a means of both promoting a more efficient allocation of scarce water resources and curbing the perceived need for additional water supply projects. Although it has taken well over a decade, important policy decisions and legislative initiatives at the state and federal levels now reflect these recommendations with increasing frequency. In 1986 the Western Governors Association approved a resolution endorsing water use efficiency as a primary objective of water allocation and planning, and endorsed voluntary water transfers as a means of achieving this end. California has passed several laws in recent years designed to encourage and facilitate water transfers. Oregon, Nebraska, and Texas are considering legislation to encourage water marketing, and Congressman George Miller has introduced the concept of marketing into the federal legislative process with a proposal to establish an exchange for water supplied by the federal Central Valley Project. Although the Bureau of Reclamation (1987) stopped short of openly advocating water markets, their admission that their "mission must change from one based on federally supported construction to one based on effective and environmentally sensitive resource management" represents an important step in that direction. Voluntary water transfers are not new. All western states permit transfers under certain circumstances, and it has long been an axiom in the West that "water flows uphill to money." Yet, it has only been fairly recently that the level of interest in and the number of transfers have reached levels where it is no longer pretentious to speak of widespread water marketing. The introduction of a monthly newsletter, Water Market Update (1987), to provide detailed information on important developments, transactions, and trends in water marketing and the publication of a book devoted to the subject are evidence of this increased interest and activity. Saliba and Bush's analysis of water marketing in six southwestern states-Arizona, California, Colorado, Nevada, New Mexico, and Utah-is certainly timely. Saliba and Bush begin by stating a principal conclusion-"that economic, rather than institutional, considerations are responsible for limited market activity" (p. 7). At the outset, I was surprised by this conclusion. Upon finishing the book, I was also perplexed. Institutions are defined by the authors as "the set of political and legal norms and organizations which coordinate and govern individual activities" (p. 6). Downplaying the institutional obstacles to water markets is not supported by either the theory or the practice presented in the study. Chapter 1 defines a water market transfer as a reallocation satisfying three conditions: water is bought and sold for its own sake and not as an incidental part of a land transfer, the buyer and seller agree voluntarily to the transfer, and the transfer price is negotiated free of constraints. Alternative means for reallocating western water include forfeiture and abandonment, eminent domain, litigation, legislative settlements of conflicting claims, and redesign of water projects. Chapter 2 presents the market model, the