California Sea Grant College Program

Water markets have been favorably compared to the status quo system. However, economists evaluating have erred in comparing "ideal" permit markets with "messy" existing regulatory structures. In fact, such markets are also likely to be "messy" with the existence of institutions and market imperfections. Some specific factors that influence permit markets in environmental commodities are identified and the potential magnitudes of these effects are discussed.

In California, special districts which provide agricultural customers with water supplies and service control the vast majority of water rights and contracts. The structure of these districts has been identified as an impediment to changing water management and distribution practices. Most districts use either of two electoral processes to elect board members and to approve various tax and bond measures. Districts using land-owner enfranchised/assessed-value-weighted voting rules most closely mirror what would be used in an aggregate wealth-maximizing cooperative. Districts using universal suffrage/one-man, one vote rules distnbute a greater amount of benefits to non-land-owners. This study explores how differences in the governance rules and political structures among these water-supply district "cooperatives" affect their management decisions.

A case study examines how California water markets have performed from 1977 to 1992, and what were the characteristics of the participants in inter-institutional short-term water trades.