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Tradable water rights : a property rights approach to resolving water shortages and promoting investment


  • Holden, Paul
  • Thobani, Mateen


In most countries, the state owns the water and hydraulic infrastructure, and public officials decide who gets water rights, how the water is to be used, and how much will be charged for its use. The authors of this paper compare administered systems of water allocation with a system of tradable water rights, and argue that water allocation by administrative edict has resulted in costly, large-scale inefficiencies in the supply and use of water, even withan adequate institutional framework. Secure property rights, on the other hand, have been shown to have a powerful positive effect on investment and efficiency, although only a few countries have tried to take advantage of the allocative efficiencies of a market to assign water resources among users. The authors argue that in order to ensure implementation of an effective water market system, attention should be paid to: (i) ensuring stakeholder participation in designing and implementing the new legislation; (ii) deciding on new rules for the initial allocation of rights and for how new rights should be allocated; (iii) establishing a public registry and block titling; (iv) setting up or strengthening water user associations; (v) protecting against the development of potential monopolies; (vi) ensuring that trades do not infringe on the water rights of existing users; and (vii) establishing appropriate environmental laws.

Suggested Citation

  • Holden, Paul & Thobani, Mateen, 1996. "Tradable water rights : a property rights approach to resolving water shortages and promoting investment," Policy Research Working Paper Series 1627, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1627

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    References listed on IDEAS

    1. Alchian, Armen A. & Demsetz, Harold, 1973. "The Property Right Paradigm," The Journal of Economic History, Cambridge University Press, vol. 33(01), pages 16-27, March.
    2. Paul Holden & Sarath Rajapatirana, 1995. "Unshackling the Private Sector A Latin American Story," Reports _019, World Bank Latin America and the Caribean Region Department.
    3. Rosegrant, Mark W. & Binswanger, Hans P., 1994. "Markets in tradable water rights: Potential for efficiency gains in developing country water resource allocation," World Development, Elsevier, vol. 22(11), pages 1613-1625, November.
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    Cited by:

    1. Counsell, Kevin, 2003. "Achieving Efficiency in Water Allocation: A Review of Domestic and International Practices," Working Paper Series 3882, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Paul Lewin, 2005. "Análisis de la Eficiencia del Mercado de Derechos de Aprovechamiento de Aguas en Chile," Others 0503005, EconWPA.
    3. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," The Warwick Economics Research Paper Series (TWERPS) 992, University of Warwick, Department of Economics.
    4. Evans, Elizabeth M. & Lee, David R. & Boisvert, Richard N., 2002. "Achieving Efficiency And Equity In Irrigation Management: An Optimization Model Of The El Angel Watershed, Carchi, Ecuador," 2002 Annual meeting, July 28-31, Long Beach, CA 19742, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Ansink, Erik & Weikard, Hans-Peter, 2009. "Contested water rights," European Journal of Political Economy, Elsevier, vol. 25(2), pages 247-260, June.
    6. Erik Ansink & Harold Houba, 2014. "The Economics of Transboundary River Management," Tinbergen Institute Discussion Papers 14-132/VIII, Tinbergen Institute.
    7. Shah, Tushaar & Ul Hassan, Mehmood & Khattak, Muhammad Zubair & Banerjee, Parth Sarthi & Singh, O.P. & Rehman, Saeed Ur, 2009. "Is Irrigation Water Free? A Reality Check in the Indo-Gangetic Basin," World Development, Elsevier, vol. 37(2), pages 422-434, February.
    8. Zhang, Lei & Heerink, Nico & Dries, Liesbeth & Qu, Futian, 2012. "Water users associations and agricultural water use efficiency in northern China," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125214, International Association of Agricultural Economists.
    9. Evans, Lewis & Counsell, Kevin, 2005. "Essays in Water Allocation: The Way Forward," Working Paper Series 3848, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    10. Evans, Elizabeth M. & Lee, David R. & Boisvert, Richard N. & Arce, Blanca & Steenhuis, Tammo S. & Prano, Mauricio & Poats, Susan V., 2003. "Achieving efficiency and equity in irrigation management: an optimization model of the El Angel watershed, Carchi, Ecuador," Agricultural Systems, Elsevier, vol. 77(1), pages 1-22, July.
    11. Alan Richards & Nirvikar Singh, 2004. "No Easy Exit: Property Rights, Markets, and Negotiations over Water," Development and Comp Systems 0412011, EconWPA.
    12. Marianne Keudel, 2007. "Climate Change and Water Resources – An International Perspective," IWP Discussion Paper Series 02/2007, Institute for Economic Policy, Cologne, Germany.


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