Water demand for agriculture is stripping the supply of groundwater around the world and demand for energy, including fracking, is growing at an alarming rate. This chapter examines how our economic and political institutions have allocated this important resource in the past and how they might improve on its allocation in the future. It examines the likelihood and severity of water scarcity. Turning to the management of people water resources and defines the efficient allocation of ground- and surface water over time and compare these allocations to current practice, particularly in the United States. The chapter also examines the menu of opportunities for meaningful institutional reform. An efficient allocation of surface water must strike a balance among a host of competing users and supply an acceptable means of handling the year-to-year variability in water flow. Water scarcity in many parts of the world is already a serious problem and unless preventive measures are taken it will get worse.