Various commentors claim that "water markets cannot work" until issues of monopoly power, the poor, inappropriate rights, etc. are solved.
Maybe and maybe not.
In a market, price signals matter. (In non-market settings -- e.g., bureaucracies -- prices may exist but people do not use them to make decisions or allocate resources.)
So, when I say that water should be allocated "by a market," I do not necessarily mean that companies will be able to enter and compete (overcoming a monopoly on supply) or that the poor will be shafted (because they cannot afford to buy water at market-clearing prices), or that farmers' rights should be taken away.
What I do mean is that price is meaningful to participants, i.e., that they will look at the price and then decide how much water to use. This event can happen with a monopoly selling the water, the poor also consuming water (because everyone gets a basic entitlement of water), and farmers using water in any which way they want. (Other issues -- infrastructure, quality, environment, wasteflows, etc. -- can be integrated into the price-rationing mechanism.)
Also note that politicians and bureaucrats like to intervene in markets, to redistribute rights to their friends, lobbyists and bribers -- and sometimes even to the People. Since their interventions change the rules of the game and prevent markets from functioning, "markets" do not deserve the blame for the outcomes that result.
Bottom Line: In a market for water, prices rise when there is less water and fall when there is more. Because prices are meaningfully high, people use less water when its more expensive (and more when it is not). The overall result is that the quantity demanded will equal supply -- and neither shortage nor surplus results.
Does this make sense? Please comment.