Economics of Water Recovery in the Murray-Darling Basin, Australia

We review recent water reforms and the consequences of water recovery intended to increase stream flows in the Murray-Darling Basin (MDB), Australia. The MDB provides a natural experiment of water recovery for the environment that includes ( a) the voluntary buy-back of water rights from willing sellers and ( b) the subsidization of irrigation infrastructure. We find that ( a) the actual increase in the volumes of water in terms of stream flows is much less than claimed by the Australian government; ( b) subsidies to increase irrigation efficiency have reduced stream and groundwater return flows; ( c) buy-backs are much more cost effective than subsidies; ( d) many of the gains from water recovery have accrued as private benefits to irrigators; and ( e) more than a decade after water recovery began, there is no observable basin-wide relationship between volumes of water recovered and flows at the mouth of the River Murray.