Water Resources Management

, Volume 9, Issue 3, pp 203–220 | Cite as

Designing water institutions: Market failures and institutional response

  • M. L. Livingston
Article
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Abstract

Efficient resource use is increasingly central to the economic well being of individual regions and countries. Institutional arrangements set the ground rules for resource use. At best, institutions facilitate achievement of economic and social goals. At worst, they establish impediments to efficient resource use and significant resources must be expended by individuals to compensate for their obsolete or poor design.

In general, efficient water use requires a secure and flexible system of water rights. In the first regard, the peculiar physical characteristics of water resources pose special challenges for institutional design. Water resources are prone to market failures that must be addressed by institutions in order to yield efficient allocation and use. A section of the paper is devoted to presenting institutional approaches to establishing security in water use. Proportionality, prioritized rights and licenses are discussed in terms of their advantages and disadvantages.

Concerning flexibility, water allocations must change in response to changing physical and economic circumstances. In the context of drought, administrative rationing, priority and drought water options are analyzed. For demand based transfers, a full range of institutional options are considered, from a complete ban on transfers to no restriction, including market and administratively based transfers. The special issues of infrastructure, transactions costs, and secondary impacts are also discussed. Finally, conclusions are drawn concerning how the mix of institutional arrangements affects incentives guiding water use.

Key words

Institutional design economic efficiency market failure water transfers policy alternatives water law Asia Australia Thailand Western U.S. 
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Copyright information

© Kluwer Academic Publishers 1995

Authors and Affiliations

  • M. L. Livingston
    • 1
  1. 1.Department of EconomicsUniversity of Northern ColoradoGreeleyUSA

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