Author(s)

J. Byrnes, L. Crase & B. Dollery

Abstract

While much faith has been placed in the ability of market based solutions to allocate water entitlements efficiently, relatively little effort has been made in fostering trade between urban and rural sectors. One barrier has been concerns regarding the decline of rural communities following the trade of water out of rural areas. In this paper we demonstrate how the use of options contracts to facilitate temporary trade between the sectors may benefit both urban water utilities and water entitlement holders in irrigation districts. Keywords: water options, intersectoral trade, water reform. 1 Introduction Creating the conditions for deep and liquid markets for the trade in water entitlements has been an enduring motif in the development of Australian water resource policy for at least the last ten years (Crase et al. [4]). Yet in terms of implementation, the focus has almost solely been on trade in rural water allocations. Trade from rural to other sectors has received relatively little attention due to at least two factors. First, in some locations considerable geographic barriers necessitate elaborate engineering solutions and considerable investment. Second, politicians and some rural communities have raised objections on the grounds that access to water is the lifeblood of rural Australia (Crase et al. [4]). www.witpress.com, ISSN 1743-3541 (on-line) © 2008 WIT Press WIT Transactions on Ecology and the Environment, Vol 112, Sustainable Irrigation Management, Technologies and Policies II 83 doi:

Keywords

water options, intersectoral trade, water reform.