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. . the recent interest in acquiring water farms, willing sellers still outnum- ber those looking to buy. The potential for transferring water in Arizona has only begun to be explored. Future innovative transfer strategies are likely to include some new players, including Indian.tribes, special water districts, and even the Arizona Department of Water Resources. KAJOR ISSUES TO BE ANAL'YZED In addition to analyzing in greater detail those aspects of the water transfers phenomenon in Arizona already alluded to, the transactions costs of some other Arizona-specific aspects of water transfers will be inves- tigated. Transaction costs of converting irrigation grandfathered water rights within Active Management Areas to Type 1 water rights will be analyzed. These water rights generally represent a movement of water from agricultural uses to municipal/industrial Uses in the same geographic area. However, these transfers represent the majority of consummated transfers within the state, and patterns in their transaction costs should be informative in terms of certain anticipated transaction costs associated with water farms in rural areas. Inter-basin water transfers in Arizona are currently being planned and executed in an atmosphere characterized by high levels of uncertainty. Current Arizona law with regard to these transfers is fairly straightfor- ward, but it is widely assumed that the state legislature will act within the near future to regulate such transfers so as to clarify their role in state water management and provide protection and compensation to areas of origin. Numerous local governments, business associations and interest groups are lobbying, drafting legislative proposals and participating in negotiations, without apparently coming near to an agreement. Another area of uncertainty involves physical transport of water from areas of origin to areas of use. All water farm purchases to date involve property located near to the CAP aqueduct, which could be used to move water to Arizona I s urban areas. However"" uncertainties as to the future excess capacity of the aqueduct, the amount of non-project water that could be transported, the costs involved and the terms and conditions under which such transport would be allowed all are unknown. The results of these uncertainties include delay and decision-making with incomplete information. An attempt will be made to assess the direct costs of these uncertainties, including the costs of negotiating and lobbying, as well as to examine the indirect effects of these uncertainties in raising other transaction costs. Finally, several land swaps that have water rights consequences have been proposed in Arizona. These may be investigated in terms of how the transactions costs differ from more traditional purchases of water rights or property with appurtenant water. -.5