Institutional Frameworks in Successful Water Markets Brazil, Spain,And Colorado,USA Public Disclosure Authorized
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WORLD BANK TECHNICAL PAPER NO. 427 (hm1j Wowk In promrs WTP427 for public dlscu~lonFeray19 February 1999 Public Disclosure Authorized Institutional Frameworks in Successful Water Markets Brazil, Spain,and Colorado,USA Public Disclosure Authorized IVne Fe I HeC Public Disclosure Authorized ! )/ I Karint 'SMvS E. Kemper I lMCaR Public Disclosure Authorized Edited by ManuelMarinio Karin E. Kemper FILEC.O0py RECENT WORLD BANK TECHNICAL PAPERS No. 350 Buscaglia and Dakolias, JudicialReform in Latin AmericanCourts: The Experiencein Argentina and Ecuador No. 351 Psacharopoulos, Morley, Fiszbein, Lee, and Wood, Povertyand IncomeDistribution in Latin America:The Story of the 1980s No. 352 Allison and Ringold, LaborMarkets in Transitionin Central and EasternEurope, 1989-1995 No. 353 Ingco, Mitchell, and McCalla, GlobalFood Supply Prospects,A BackgroundPaper Preparedfor the World Food Summit, Rorme,November 1996 No. 354 Subramanian, Jagannathan, and Meinzen-Dick, UserOrganizationsfor Sustainable Water Services No. 355 Lambert, Srivastava, and Vietmeyer, MedicinalPlants: Rescuinga GlobalHeritage No. 356 Aryeetey, Hettige, Nissanke, and Steel, FinancialMarket Fragmentationand Reformsin Sub-SaharanAfrica No. 357 Adamolekun, de Lusignan, and Atomate, editors, Civil ServiceReform in FrancophoneAfrica: Proceedings of a WorkshopAbidjan, January 23-26, 1996 No. 358 Ayres, Busia, Dinar, Hirji, Lintner, McCalla, and Robelus, IntegratedLake and ReservoirManagement: World Bank Approachand Experience No. 36G Salman, The LegalFrameworkfor Water Users'Associations: A ComparativeStudy No. 361 Laporte and Ringold, Trendsin EducationAccess and Financingduring the Transitionin Centraland EasternEurope. 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Kemper The World Bank Washington,D.C. Copyright C) 1999 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing February 1999 2 3 4 5 03 02 01 00 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. The World Bank encourages dissemination of its work and will normally grant permission promptly. Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use, is granted by the World Bank, provided that the appropriate fee is paid directly to Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, U.S.A., telephone 978-750-8400, fax 978-750-4470. Please contact the Copyright Clearance Center before photocopying items. For permission to reprint individual articles or chapters, please fax your request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank at the address above or faxed to 202-522-2422. ISSN: 0253-7494 Manuel MarinFo is senior environmental specialist in the World Bank's Transportation, Water, and Urban Development Department. Karin E. Kemper is an economist in the Bank's Environmentally and Socially Sustainable Development Unit, Latin America and the Caribbean Regional Office. Library of Congress Cataloging-in-Publication Data Institutional frameworks in successful water markets: Brazil, Spain, and Colorado, USA / edited by Manuel Marifno and Karin E. Kemper p. cm. - (World Bank technical paper, 0253-7494 ; no. 427) Includes bibliographical references (p.) ISBN 0-8213-4459-5 1. Water-supply-Economic aspects-Brazil. 2. Water -supply-Economic aspects-Spain. 3. Water-supply-Economic aspects-Colorado. I. Marifio, Manuel. II. Kemper, Karin E. III. World Bank. IV. Series. HD1697.B6 157 1999 333.91-dc2l 99-12016 CIP Contents Foreword iv Acknowledgments v Abstract vi Executive Summary vii WATER ALLOCATION AND TRADING IN THE CARIRI REGION - CEARA, BRAZIL Introduction 1 Physical Background I Historical Evolution and Components of the Water Rights System 3 The Value of Water 6 Conclusions and Recommendations 8 References 9 THE SIURANA-RIUDECANYES IRRIGATION SUBSCRIBERS ASSOCIATION AND WATER MARKET SYSTEM Introduction I 1 The Siurana-Riudecanyes District 11 The Water Rights 14 The Water Rights Market 15 Water Management Mechanisms 18 Conclusions and Policy Implications 18 Sources and References 19 THE WATER MARKET IN THE NORTHERN COLORADO WATER CONSERVANCY DISTRICT - INSTITUTIONAL IMPLICATIONS Introduction 21 Water Markets and Institutional Analysis 21 History of the District 22 The Water Market 25 Water Use Rights 25 Return Flows - Dealing with Third-Party Impacts 28 Transaction Mechanisms - Contracting and Information 28 Market Restrictions 30 Physical Features of the Water Market 31 Effects of the Market 32 A Functioning Market Based on an Elaborate Institutional Framework 37 Implications for Developing Countries 41 Conclusion 42 References 42 iii FOREWORD Water is increasingly recognized as a scarce resource that must be managed more efficiently than in the past. In addition to physical scarcity, the cost of accessing these resources is climbing. New reservoirs, water transfers among river basins and water supply systems force each new user to access more distant water resources at increasingly greater costs. The debate surrounding these issues is increasingly focused on water markets as possible instruments for more efficient water resources allocation and use. Well functioning water markets provide economic incentives to water users, inducing allocation, use and conservation according to value. Markets are also more flexible than the traditionally used administrative allocation mechanisms. Providing users the ability to decide if they will buy or sell water rights ensures that they do so voluntarily and financial compensation is received. This is often not the case when water is reallocated or expropriated by a central authority. Thus, the market mechanism can be used to reduce conflicts. While the benefits are clear, sufficient