Property Entitlements and Pricing Policies for a Maturing Water Economy

The Australian water economy is entering a mature phase characterised by inelastic supply of 'new' water and the need for expensive rehabilitation of aging projects. Thus, the policy focus will turn increasingly toward ways of restraining water demand and reallocating existing supplies. A prima facie case is made that the efficiency loss from current water pricing and allocation policy is significant. After considering the relevant welfare economics theory, the theory of administered prices and marketable property rights and some American proposals for reform, a system of transferable water entitlements is proposed and developed.