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<br />VOL, 30, NO.6 <br /> <br />DECEMBER 1994 <br /> <br />WATER RESOURCES Buu.ETIN <br />AMERICAN WATER RESOURCES ASSOCIATION <br /> <br />ADMINISTRATIVE, INSTITUTIONAL, AND STRUCTURAL <br />CHARACTERISTICS OF AN ACTIVE WATER MARKETl <br /> <br />Ari M, Miche/sen2 <br /> <br />ABSTRACT: Voluntary water transfers t.hrough markets have been <br />advocated by many diverse groups as a means to reallocate sCBrce <br />wat.er supplies in the semi-arid western U.S. Although transfers of <br />water rights have occurred almost since the creation ofpnor appro- <br />priation laws over a century ago. functioning water markets have <br />been very slow to develop and arc few in number. The structure, <br />composition. administration and transactions of one of the most <br />well established water markets. shares in the Bureau of Reclama- <br />tion, Colorado-Big Thom'P!Kln project, are examined to betler under. <br />stand the institutional and transfer conditions that sustain an <br />active water market. Results from a detailed study of C-BT project <br />records reveal that between 1970 and 1993 there were 2.698 trans- <br />actions through which over one-third of the project water changed <br />ownership or type aruse. Further analysis shows that the transac- <br />tions involved many individual sellers and categories of buyers <br />with different uses, including agricultural buyers. The transfer <br />activity and efficiency of the C-BT market has lead some to suggest <br />that it be used as a model for other market~ However, because this <br />market has fewer institutional restrictions, a well developed inrras- <br />tructure and unique market conditions, it will be difficult to trans- <br />rer this model to other areas without accompanying modifications <br />in water right administration and institutions. <br />(KEY TERMS: water transrers; water markets; watcr rights; insti. <br />tutions; reallocation; administration.) <br /> <br />INTRODUCTION <br /> <br />Economists, water resource managers, lawyers, <br />environmental groups and politicians have advocated <br />the use of voluntary water markets as a means to <br />reallocate scarce water supplies in the semi-arid west- <br />ern U,S. (Anderson and Turner, 1993; Howe, 1986; <br />Driver, 1986; Yardas, 1993; Meyers and Posner, 1972). <br />The demand for water continues to increase with the <br />growth in population, industry, recreation, environ- <br />mental and other uses, At the same time, the normal <br />!lows of many western rivers are already fully allocat- <br />ed and new water supplies are increasingly difficult, <br /> <br />if not impossible, to develop further. This is seen as <br />evidence that the western United States' water econo- <br />my is moving from the expansionary phase to the <br />mature phase (Randall, 1981). In other words, "we are <br />moving from an era premised on the continual devel- <br />opment of new supplies to a reallocation era premised <br />on the better use of existing supplies" (National <br />Research Council, 1992), One consequence of these <br />conditions is that there is increasing attention on <br />transferring water rights from one use or location to <br />another, My purpose here is to examine one of the <br />more established water right markets in an effort to <br />learn about the institutional, administrative and <br />transaction characteristics of an active water market, <br /> <br />MARKET TRANSFERS ADVOCATED <br /> <br />Interest in transferring water through markets has <br />grown quickly, Numerous individuals and groups <br />have advocated and discussed water market issues in <br />publications, papers and conferences, often with the <br />recommendation that market transfers should playa <br />significant role in meeting current and future water <br />needs, For example, in a study for the Western Gover, <br />nors' Association, the Water Efficiency Task Force <br />reported that "Voluntary transfers are the linchpin of <br />a strategy to enhance water use efficiency in the <br />West" (Driver, 1986), Following a series of workshops <br />in 1991 and 1992, the Western Governors' Association <br />and Western States Water Council endorsed a set of <br />principles and recommendations for managing west- <br />ern water, Their report includes recommendations to <br />manage water on a watershed or problemshed basis <br />and the preference for using market-like rather than <br /> <br />lPaper No. 94147 of the Water Resources Bulletin. Discussions are open until August I, 1995. <br />2Departmcnt or Economics, Vancouver Campus, Washington Statc University. 1812 E. Mcloughlin Blvd.. Vancouver, Washington 98663. <br /> <br />971 <br /> <br />WATER RESOURCES BULLET\N <br />