Can Urban Water Markets Work? Some Concerns

There is now considerable interest in exploring the usefulness of markets as a means of dealing with urban water provision in Australia. Buoyed by the successes of markets in electricity and telecommunication services, the reformist's gaze has now turned to urban water, where ongoing water shortages have forced water utilities to invoke widespread restrictions to bring demand into balance with limited supply. Amongst the arguments proffered in favour of urban water markets is the view that such arrangements would result in improved allocative efficiency (see, for instance, Productivity Commission 2008). It is also contended that markets should give rise to clear incentives for timely investment in alternative water sources and new technologies which might ultimately alleviate the necessity for water restrictions.