Institutional Constraints and Inter-jurisdictional Water Trade: The Case of the Australian Capital Territory and New South Wales

Water trade remains a contentious political issue in Australia, regardless of the acknowledged benefits to which economists continually refer. At least two sources of concern arise in discussions about water trade. First, concerns are often expressed about inter-sectoral ramifications. These usually take the form of prophecies about the profligate growth of urban centres being achieved at the expense of regional and rural communities. Second, mention of unfettered trade between jurisdictions is usually sufficient to provoke rhetoric that draws upon long-standing rivalries between states. This paper considers the benefits of water trade between agricultural interests in the Murrumbidgee Valley in New South Wales and the predominantly urban users in the Australian Capital Territory. The paper goes beyond the standard economic analysis by also pointing to the range of institutionally-based constraints that circumscribe the operation of water markets. In this regard, the arguments in the paper offer a salient caveat to the bold predictions of the National Water Plan and related statements on the operational dimensions of water policy.