As part of its symposium on "What's Next? The New Progressive Agenda," the webzine Democracy: A Journal of Ideas includes "tradable water rights" among the "progressive" ideas our nation's leaders should adopt. In a short essay, MIT environmental economist Michael Greenstone explains how tradable water rights could help overcome water allocation and scarcity problems, particularly in the West. According to Greenstone:
There are clear gains from having an active market in water rights. It would help solve the problems posed by current water shortages in the West, and it would provide the flexibility necessary to confront the impact of climate change on water supplies in the coming decades. It would be, in a word, fluid.
In his view, the federal government should take three steps to facilitate the development of water markets:
First, the restrictions that prevent the trading of water rights across state lines should be removed. The median price for a one-year lease of an acre-foot of water in Colorado is 10 times the median price in Utah. Additionally, as much as possible, other restrictions on trades and the requirement that all trades be reviewed by bureaucrats should be removed.
Second, property rights for water must be clarified. The practice of usufruct rights, in which the state holds all water "in the public trust," with the ability to retract or reassign rights, should be eliminated. The uncertainty caused by these policies prevents beneficial investments from being made.
Third, federal and/or state governments can reduce transaction costs in several ways. They could, for example, set up a monitoring system to determine withdrawals from the Colorado River and other important water sources. Moreover, the government could help fund a centralized market for trades if one doesn't develop in the private market naturally. Finally, government involvement would likely be necessary to construct water transportation systems that aid trading or to clear the legal hurdles to developing these systems.
The case for water markets is particularly urgent when one considers the potential consequences of climate change, so it is promising to see water markets embraced as part of a "progressive" agenda.