Improving the ability of a water market to efficiently manage drought

Some water markets maintain institutional elements that provide allocative advantages to specified water users. In the Lower Rio Grande Valley, water rights are designated as either municipal or agricultural (irrigation), wit h certain prioritization advantages afforded to municipal accounts. While s ales of rights between municipalities and irrigators are allowed, the prior ity disparity results in a prohibition on leasing between sectors. Concern over meeting future urban demand has led municipalities to purchase rights well in excess of current needs. The inability to lease municipal water to irrigators removes a significant and growing fraction of available water fr om the market. The additional flexibility provided by leasing provides a va luable tool for managing seasonal drought. In this analysis the justificati on for prioritized municipal water is investigated. Results indicate that t he added security municipalities may derive from higher prioritization duri ng drought is accompanied by economic inefficiencies in regional water allo cation. It is argued that eliminating municipal protection and the conseque nt allowance of intersectoral leasing would contribute to regional well-bei ng at small cost to municipal water users.