A new phase in water resource allocation : the case for groundwater markets in Texas

This report explores the application of a market framework to allocating water resources, with a specific focus on groundwater resources in Texas. Water markets have been touted by economists as an efficient and effective means of reallocating a scarce natural resource and have been implemented in various forms across the western United States. This report discusses the characteristics of water markets that allow them to efficiently allocate water resources as well as the need for institutional oversight to address negative externalities, including environmental and third party impacts. A description of Texas law and regulation of groundwater resources is also given and analyzed in the context of establishing widespread groundwater markets in the state. Several case studies, both in Texas and in other western states, are also analyzed to determine best practices for the creation of a statewide system of groundwater marketing. The report concludes with several recommendations based on these case study analyses and in light of the current legal and regulatory obstacles to widespread water markets in Texas.