Accounting for water flows: Are entitlements to water complete and defensible and does this matter?

Institutions that structure resource access and use are intended to reduce uncertainty about the behaviour of others and make higher levels of coordination and social organisation possible. These institutions aim to facilitate the security of resource access that individuals and businesses need to invest and create income in the economy. Our goal, in this chapter, is to explore the institution of water entitlements with a focus on the exclusivity of water use. Specifically, we ask whether existing water entitlements facilitate defensible exclusion of other potential and actual water users. We also comment on the transaction cost implications of alternative policy responses to incomplete exclusion. Across Australia, entitlements to water are formally allocated through a licensing system. Although this system varies between States, in most cases, entitlements are defined in two parts. First, a specified share of the total water in a defined river or major storage that is available to the water user. Second, rules outlining responsibilities for this water use such as when, where and how this water can be used. Current entitlements include provisions to ensure water quality outcomes. These water quality criteria are not discussed in this chapter despite their importance to water users. Existing water entitlements are incomplete because they do not cover all aspects of the hydrological cycle of water, from its source as rainfall onto farms and other lands to its eventual exit from the system as evapotranspiration or runoff.