Creating a Water Market in California: What Will It Take?

Abstract

This case examines the creation of a water market in Southern California. Given the scarcity of water in the state, and the increasing demand for water in the agricultural sector that drives the economy, innovative measures have been developed to build a market where farmers can trade water rights. The work of the Fox Canyon Groundwater Management Agency offers insights into how provision of a public good—one that is accessible and used by all, such as clean air or water—can be made efficient through creative means, even in a highly regulated scenario. The case can be used to illustrate the challenges involved in bringing together different stakeholders with diverging interests to solve a “commons” problem; that is, one concerning a public good that is in the commons (accessible to all, with few restrictions).