Do markets promote more efficient and higher value water use? Tracing evidence over time in an Australian water market

This paper analyses buyers and sellers of water entitlements in Australia based on surveys conducted during three time periods from 1992 to 2006 to identify whether water markets have facilitated a reallocation of water from inefficient, unproductive and low-value users to efficient, productive and high-value users. There is evidence that the entitlement market has an increasing impact on the way water is used and facilitates reallocation. While the early markets mainly activated previously unused water, there is evidence that as the market matures, more actively used water is being sold reducing the productive capacity of the selling property. The evidence suggests that many sellers reduced their irrigated area during the last five years, in response to prices in the seasonal market for water allocations, before eventually selling their entitlement.