ABSTRACT

The depth and sophistication of water trading in Australia, especially in the southern Murray-Darling Basin (MDB), is testament to the insight of policy makers and their hard work to create tradable property rights and systems that facilitate trade. The origin of water markets is also testament to the desire of Australian farmers to be able to source water during times of scarcity, and their demands for more flexible arrangements. By international standards, Australia’s water markets are an exemplar of good water economics. Armed with empirical and theoretical evidence (e.g. Pigram and Musgrave 1989), and given the history of drought and water scarcity in Australia, policy makers had the foresight in the 1970s and 80s to realize that historical allocations of water and the institutions for managing them would be found wanting, especially in times of scarcity. A low-cost means of resource reallocation was required and markets for water entitlements and water allocations have ultimately proven up to the task.