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Shopping for Water: How the Market Can Mitigate Water Shortages in the American West

All Authors: 
Peter W. Culp, Robert Glennon, Gary Libecap
October 19, 2014

Greater use of water markets is one promising avenue to address the problem of increased water scarcity. In the face of a severe drought and unprecedented declines in reservoir storage and groundwater reserves throughout the West, the authors advocate for the use of market forces to facilitate the movement of water resources and to mitigate the risk of water shortages. To promote the broader establishment and use of market institutions, the authors propose that states allow simple, short-term water transactions; facilitate these transactions by establishing essential market institutions such as water banks; support and encourage the use of market-driven risk management strategies to address growing variability and uncertainty in water supplies; and better regulate the use of groundwater to ensure sustainability. The authors also encourage strong federal leadership to promote interstate and interagency cooperation in water management. Each of the five policy recommendations offers a means of building resilience into our water management systems.