Investigating the role of water market in determining the economic value of water

Most countries have seen a shift in water policy paradigm during the last two to three decades away from ‘command and control’ to more decentralized and market-driven policies. Full-cost recovery prices, water markets and the devolvement of water management issues to local levels are key components of the new paradigm. Globally, this process has been driven by major international organizations such as the United Nations, the World Bank and the Organization for Economic Co-operation and Development. In many countries this shift has also been in response to the fact that most water resources are fully or over- committed, and that no new major water infrastructure developments are forthcoming to further increase supply. Within this scenario only a reallocation of existing resources can provide water for new irrigation developments. Such reallocation is essential in many areas of the world in order to move water away from degraded areas, and from low-value users, and to ensure maximum benefits from the limited resource. Policy makers see water markets and pricing polices as essential instruments to facilitate this reallocation; full-cost recovery prices should encourage irrigators to use water more efficiently and on higher value crops, and force those who are unable to make the necessary adjustments to stop irrigation and sell their water to those who can; water markets are seen as the instruments to facilitate this process and offer the exiting farmers some compensation in the process. It is therefore essential that efficient market mechanisms are developed and constantly adapted to meet changing demand within the social and environmental constraints of irrigation communities. Within many developing countries with limited social and institutional capacities the adoption of markets for permanent water rights (often called formal markets) has been hesitant, while markets for short-term transfers of water access (often called informal markets) have been more widely adopted, since no change of ownership to the underlying entitlement to the water takes place. Within developing countries special care will need to be taken to ensure that water market policies are developed within a framework that guarantees social equity and protects the weakest in the society. In this study, investigating the role of water market in determining the economic value of water it was discussed.

Keywords:

water management , water market , new irrigation developments , informal markets , social equity