Introduction

Throughout the world there are growing problems of a scarcity of fresh water relative to demand. These problems are particularly critical in more arid regions, such as the Middle East, North Africa, Mediterranean Europe, Australia, north-west China, northern Mexico, parts of South America, and the western USA. In the American West there are rapidly growing urban and environmental demands for water, but virtually no new supplies to meet them. Conservation of existing urban water is not a solution, given the magnitude of urban growth relative to supply. The water must come from somewhere else. Similarly, rising per capita incomes have brought greater demands for water to meet environmental and recreational uses. Historically, little water has been directed to those areas so that conservation of existing uses will not release major new amounts of water. And, there are no new dam sites or large, untapped aquifers to quench this thirst. To meet growing urban and environmental demands, water must be reallocated from agricultural uses, where most water is consumed.

For other resources, such as land, shifts in demand and associated reallocation are accommodated routinely with little fanfare through market transactions. When values in new uses exceed those in existing ones, the resource is transferred to new applications. For instance, in areas where there is urban growth, adjacent farmland gradually shifts from crops to housing and commercial activities through the real-estate market.