Markets in tradable water rights: potential efficiency gains in developing country water resource allocation

Establishment of tradable water rights could play an important role in improving the efficiency, equity, and sustainability of water use in developing countries. Well-defined tradable rights formalize and secure the existing water rights held by water users; economize on transactions costs; induce water users to consider the full opportunity cost of water; and provide incentives for water users to internalize and reduce many of the negative externalities inherent in irrigation. The institutional requirements, potential and feasibility of developing markets in tradable water rights should receive increased attention from researchers and policy makers.