Markets are already making a significant contribution to increasing rural water-use efficiency. But further reform is needed to ensure that water continually moves to wherever it has the highest value to society (including its value in environmental uses).
This study examines the feasibility of establishing market mechanisms to encourage economic efficiency of rural water use, including managing environmental externalities. An economic definition of water-use efficiency is adopted that incorporates how water resources are allocated and used to achieve the greatest overall social benefit. Although there are a number of potential environmental externalities associated with rural water use, those associated with altered river flows and with irrigation salinity are the main focus in this report.