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Abstract
The development of a market in groundwater usage rights can be inhibited
by constraints arising from the institutional context. Such impediments
may reduce the potential gains from trade and may generate high
transaction costs for prospective traders. We analyse the regulations
and policies influencing groundwater transfers in a case-study area --
the Gnangara groundwater system around Perth, Western Australia -- and
identify significant impediments to a groundwater market. Property
rights are found to be conditional, temporary, and vulnerable to
amendment. Regulatory approval is required for all transfers.
Facilitating infrastructure is lacking, and price information is
unavailable. Management area boundaries reflect land ownership and use
rather than hydrogeological realities; the limitation of transfers to
within these boundaries eliminates much of the potential for gains from
trade. Over-allocation and weak monitoring also impede the development
of a market. The current management system is likely to obscure unmet
demand for water-rights transfers between users and usage-types.