The strengths and weaknesses of water markets as they affect water scarcity and sovereignty interests in the west

Primarily as a result of a landmark decision of the Supreme Court in the Sporhase case, the issue of water scarcity has reemerged over the last few years as a topic of practical and intellectual focus. This paper addresses the desirability of using the free market as a means for allocating scarce water resources. First, the potential strengths and weaknesses claimed for markets as a means for allocating scarce commodities are discussed. Next, the extent to which the market for water rights in New Mexico is a competitive, well-functioning one is examined. Concluding that this market is probably far from being "perfect," or well-functioning, the implications of allocating water within an imperfect market are then considered. Finally, some special problems are outlined that may arise for governments if major reliance is to be placed on markets.