Abstract
Allocation stress, that is, access conflicts between the agricultural, domestic, industrial, urban service and environmental uses of water, is set to become more intense in the future because of global population growth and climate change. Because of the dominant role of irrigation water use at the global level, it is imperative to explore the possibilities of reducing farmers' use of water or, at the very least, of slowing its growth. One process by which the scale of irrigation is reduced occurs when farmers choose to sell their water rights to actors that apply these released flows in towns and cities for household, manufacturing and urban service uses. In this paper a theory of price and volume determination of such markets is presented, using concepts of urban actors' maximum bid price and farmers' minimum release price for water rights. The limits of the theory are then discussed with respect to timescale, water concessions, partβsales, sales of land, the legal context, thirdβparty effects, market structure and transaction costs. The main conclusion is that the market equilibrium approach is rarely applicable and that fieldwork will in general have to deal with arcane, oneβoff bilateral trades. Copyright Β© 2003 John Wiley & Sons, Ltd.