17 association rather than the Governrment to verify past water usage of individual farmers. Second, it leads to titling many users simultaneously. This "block titling" of water rights reduces unit titling costs and helps resolve conflicts. It is also important to ensure that elections for the officials of the water user associations are conducted in a transparent and fair manner so that if members of the association are dissatisfied with the way it is being run, then can remove the officials that are not performing satisfactorily. While this will not eliminate unjust allocations or corruption, it will help reduce it and is still likely to more just and less corrupt than when unelected government officials are making decisions on water allocation and pricing.

54. For the second step of the initial allocation process, the guidelines may vary by region, watershed, and canal. Where there already exist registered water rights and where there is sufficient water to honor all water rights, it is probably sufficient to have them reregistered in the new public registry of water rights. However, where the existing registry contains many overlapping property rights (the sum of water rights exceeds the water available), it would be better for the initial allocation to be based on past usage estimated by water user associations. In situations where there have existed gross abuses of water rights, it is probably best to assign them to communities based on historic use and subsequently proportionally to individuals based on irrigated land area.

# **_Design_** _Issues_

**_55._** The potential of water trades to infringe upon the rights or water availability of thirdparties needs to be well understood and addressed. This is most likely to occur for agricultural "return flows." If a farmer were free to sell his entire irrigation water to users outside the area, users downstream that may have received the farmer's return flows would lose their water without compensation (Figure 1). One way to address the return flow problem is by having the water user association and/or a public body such as a watershed authority approve requests for changes of water intake to ensure that third party rights are not affected. Since virtually all sales of water outside the area will require a modification in water intake, this should in principle protect against water sales that reduce the water available to third parties. However, the way that this rule is enforced could either penalize downstream farmers or stifle the market. Some alternate ways for formulating the regulations to address this issue are discussed below.

56. One option is to adopt the Chile approach where all permanent consumptive use rights are expressed as a percentage share of water availability (either in a stream or reservoir), with the shares summing to 100 percent. If, because of the return flow effect, a sale of water rights results in reduced water availability, all consumptive rights holders, including the entity buying the water, would share in the reduced flow (Figure 2). The system works fairly well in Chile, where few irrigation systems have significant return flows. In the case of two Chilean rivers with high return flows, the Elqui and Aconcagua, their respective water user organizations have prohibited upstream users from selling their water to users whose return flows would not flow back into the river. In countries which