ABSTRACT

ABSTRACT: Global mismanagement of water resources calls for a reconsideration of water policies. Three general types of water policy instruments are water pricing, water markets and institutional instruments based on cooperation. Water markets have been implemented in Australia to confront water scarcity and droughts, and water pricing is advocated by the European Union to balance supply and demand. This paper compares the performance of these three types of instruments in dealing with drought for the case of the Jucar basin in Spain. The findings indicate that the outcomes from the current institutional setting are similar to those from water markets, demonstrating that the current institutional approach based on stakeholders’ cooperation is quite close to the first best policy. Another important finding is that the outcomes from water pricing involve huge losses for farmers, which will make water pricing politically unfeasible.