Note this book is about long-term trades, not short-term trades. Although I can see some advantages to long-term trades, I favor short-term trades because they lower uncertainty on both sides -- producing more equitable and efficient results. (This is why I think long-term markets are currently still-born.)
The first chapter outlines many themes familiar to readers of this blog (competing interests, the need to manage demand as well as supply, the importance of property rights, etc.) and gives a brief overview of the water situation in other western states. The second chapter discusses the interplay of markets as institutions, government and the complications of treating water as a commodity for sale. Chapter three outlines the different themes in water rights and markets -- public trust, area-of-origin, beneficial use, groundwater rights, sustainability, etc. Haddad also discusses how the erosion of property rights in water has perhaps limited the efficiency with which we allocate it (the tragedy of the anti-commons; also see the second item in the post below.). Chapter four discusses short-term water "markets" in Westlands and the Drought Water Bank of 1991-1992. The DWB failed (as it did in 2009) because DWR applied too many bureaucratic controls. It's hard to apply lessons from Westlands' more-or-less efficient market because it's limited to Westlands.
Chapters 5-7 discuss the IID-MWD deal of 1988, the 1992-1994 PVID-MWD fallowing deal that laid the groundwork for their current, successful fallowing agreement) (ironically BurRec spilled MWD's "saved" water when it ran out of storage in 1997), and the Devil's Den-Castaic deal that involved a land-purchase and merger of rights. Each of these deals was "long term" in terms of transfer duration, but they also took ages to negotiate and relied a lot more on faith than robust market institutions.
In the final chapter, Haddad discusses the absence of markets in California and gives twelve recommendations on how to make markets work:
- Consider the scope and direction of water reallocation to be matters of public policy.
- Design regional water markets around natural and engineering watersheds.
- Emphasize flexibility in contracting.
- Retain one-to-one negotiations until a preliminary agreement is reached. [This limits the confusion of trying to be all things to all people BEFORE a basic agreement is in place.]
- Allow irrigation districts to be full participants in transfers involving their own water. [This refers to the problem of farmers trying to make deals without permission of neighbors who can veto the deal.]
- Hold parties to a proposed water transfer accountable to other parties in the state.
- Require a land plan for each long-term rural-to-urban transfer.
- Provide interested parties with access to water-transfer information.
- Limit new powers granted to holders of water rights.
- Return leased water to its original permitted or recognized use.
- Ensure the neutrality and effectiveness of oversight institutions. [This refers to DWR's favoritism towards SWP contractors.]
- Manage the market mechanism as if it were a program.
Perhaps the most depressing section in the book comes in Appendix I, where Haddad recounts the mid-90s enthusiasm of economists and public policy makers who saw markets as a "sure thing." Fifteen years later, they are still far from happening. I think that markets are missing for several reasons:
- Some water rights holders (e.g., IID) are dysfunctional, reducing the supply of willing sellers.
- Environmental groups are trying to get water with political instead of economic tools, diverting attention from markets.
- Urban areas have preferred to build supply (e.g., desalination) rather than buy it, decreasing the pressure to make markets work.
- Conveyance is hard to access for political (e.g., Delta) or economic (e.g., Colorado River Aqueduct) reasons, increasing the cost of transfers.
Bottom Line: This book is worth reading for a case-study, historical discussion of the failure of water markets in California. It gives useful checklists of what to look for, but it provides no silver bullet. Water markets are only going to happen when the force of political (and economic) will exceeds the resistance from entrenched supporters of the status quo. For the general reader, I give this 2 stars because it's more about case studies in California than "making markets." For the true water geek, I give it 4 stars for its useful and clear discussion of the many issues that may arise in the quest for markets.