Summer 2015

Dynamic Markets for Dynamic Environments: The Case for Water Marketing

Terry L. Anderson

Static models used in economics and ecology ignore dynamic processes at work in both human and natural systems. In the case of water management, whether for quantity or quality, static models fail to connect changing human demands on water systems with changing supplies due to short-run climate variations and long-run climate change. Water markets provide a way of connecting human demands to nature's supplies through prices, which signal values and scarcity. For water markets to make this connection, water rights must be well-defined, enforced, and tradeable. When they are, entrepreneurs are able to meet old and new demands on water ecosystems in novel ways, as examples in this essay illustrate.

TERRY L. ANDERSON is the William A. Dunn Distinguished Senior Fellow at PERC (the Property and Environment Research Center) and the John and Jean De Nault Senior Fellow at the Hoover Institution at Stanford University. His many publications include Free Market Environmentalism for the Next Generation (with Donald R. Leal, 2015), Environmental Markets: A Property Rights Approach (with Gary D. Libecap, 2014), and Tapping Water Markets (with Brandon Scarborough and Lawrence R. Watson, 2012).

To read this essay or subscribe to Dædalus, visit the Dædalus access page
Access now