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Colorado-Big Thompson The U.S. Bureau of Recla- mation's Colorado-Big Thompson project has been cited as a prime ex- ample of efficient water marketing. The project involves a series of res- ervoirs to capture part of the flow of the Colorado River and its tributaries. An average of 230,000 But limiting sales to within the con- servancy district precludes even more-profitable transactions that might take place with buyers out- side the Northern Colorado Water Conservancy District. For example, the right to an acre-foot of water in perpetuity has sold for $3,500 more in the neighboring Denver suburbs than in the conservancy district. 13 the existing canal sys ems for dis- tributing water, unce tainty as to who actually owns the water rights, a rural culture that believes water should not be bought and sold separately from la d, and slow and erratic administr tive proce- dures designed to prrltect third- parties from injury.15 Sustainable Managf' ent . A consensus IS growIng that sustai able eco- nomic deve opment de- pends on tr ating water as a scarce resource an~ using eco- nomic principles to gU~de its man- agement and allocat on. Water markets are a means f introduc- ing these principles an allocating supplies in response to changing supply-and-demand ondi tions. But marketing water di fers in im- portant ways from t e sales of most goods and servic s. The fu- gitive nature of the re ource, the variety of services it pr, vides, and interdependence am ng users limit the potential fo efficient water marketing. Addi ional con- straints result from the aws, regu- lations, and treaties th t establish rights to water and Ii it how it can be used. Water resources withi a basin- precipitation, runoff, wa r in lakes and streams, and ground ater-are interrelated. Water users ecome in- creasingly interdepende t as sup- plies become scarcer. Da s, reser- voirs, canals, pumps, a d levees make water availability I ss depen- dent on the vicissitudes f the hy- drologic cycle and more ependent on human decisions. This i rrastruc- ture broadens the opport nities for allocating supplies and enerates new demands on the reso rce. Reservoir operations a ect a va- riety of water uses, such as flood A consensus is growing that sustainable economic development depends on treating water as a scarce resource. acre-feet of water annually is trans- ferred through a tunnel from the western slopes of the Rocky Mountains to the Northern Colo- rado Water Conservancy District in northeastern Colorado. Rights to proportional shares of this wa- ter are freely traded, unencum- bered by third-party concerns, within the district. Under western law, downstream users generally own rights to the return flows of upstream users, and transfers must take account of downstream impacts. But since Colorado-Big Thompson water originates in another basin, the district has retained ownership of the return flow of the diverted water. This arrangement does not eliminate third-party impacts, but it does eliminate the need to con- sider them in transfer decisions. In this case, the benefits of be- ing able to transfer water readily among agricultural, municipal, and industrial users within the district are likely much greater than the costs of ignoring the third-party impacts. 60 . FORUM for Applied Research and Public Policy Chile Water. Chile, which has em- braced market economy principles for the last quarter century, has in- troduced measures to encourage water marketing. In 1981, the na- tion separated water rights from land ownership and made these rights freely transferable. Views differ as to the extent and benefits of the water markets that emerged in response to these changes. One view holds that Chile's water mar- kets function effectively; water moves from lower to higher value uses, prices are responsive to tem- porary as well as longer-term scar- city, and trading is active. 14 A less-optimistic view holds that transfers of water rights sepa- rate from land ownership are un- common, involve only a small per- centage of users, and result in little actual reallocation of supplies. In particular, several factors are cited as inhibiting sales of water rights separate from land ownership. These include the inflexibility of