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Abstract
When entitlements to access water in fully allocated river and aquifers are specified in
a manner that is inconsistent with the ways that water arrives, flows across and flows
through land, inefficient investment and water use is the result. Using Australia’s
Murray Darling Basin as an example, this paper attempts to reveal the adverse
economic and water management consequences of entitlement and water sharing
regime misspecification in regimes that allow water trading. Markets trade water
products as specified. When entitlements and the water sharing system are not
designed in a way that has hydrological integrity, the market trades the water management
regime into trouble. Options for specification of entitlement and allocation
regimes in ways that have hydrological integrity are presented. It is reasoned, that if
entitlement and allocation regime are set up in ways that have hydrological integrity,
the result should be a regime that can autonomously adjust to climatic shifts, changes
in prices and changes in technology without compromising environmental objectives.