The performance of water markets: Transaction costs, interjurisdictional barriers and institutional options

Water markets may provide a workable alternative to high administrative pricing strategics for water. Markets can be formal or informal, depending on the country, the water resources, and the type of trade anticipated. In selected areas of northern Chile, formal markets have significantly improved the allocation efficiency of water, both within and between sectors. In other countries such as India and Pakistan, informal markets are more common than was once realized, bur occur only within a given irrigation system or district. If the major inefficiencies in wafer allocation are within irrigation districts, then informal markets may be sufficient. But where interjurisdictional trades offer most of the potential for gains fi om tr ade, steps should be taken to establish formal water markets.