Introduction to the special section on Institutional Arrangements and the Effects on Water Resources

[1] Because of the growing demands for water resources and concerns about declining water quality the institutions and institutional arrangements guiding water use have become increasingly important. The growing demands have made it more difficult to provide a given quantity and quality of water when and where it is demanded with the prevailing institutional arrangements. Adding to the pressure on existing institutions and institutional arrangements is the potentially adverse impacts of water use on third parties. These adverse impacts can be seen in terms of declining water quality or less water available for other users, and their amelioration often requires carefully designed institutional changes. [2] Institutional arrangements establish the rules for the use and protection of water [Livingston, 1995]. Institutions are “ordered relationships among people which define their rights, exposure to rights of others, privileges and responsibility” [Schmid, 1972, p. 893]. Effective institutions ensure the behavior of others [North, 1990]. While institutions involve the rules of the game, institutional arrangements encompass the governance structure (organizations and contractual arrangements). Institutions and institutional arrangements for water include at least three key components: water laws, water policy and water organizations [Saleth and Dinar, 2004]. Also important are other laws, policies or programs that have an impact on water use. For example, U.S. farm legislation, which has increased crop production across the U.S., has also significantly expanded water use, particularly in the irrigated areas of the western U.S. Equally important are environmental programs that limit water diversions because of potentially adverse impacts on aquatic species and recreational water uses. In addition, as Saleth [1994] points out, government policy and administration have a direct impact on the development and effectiveness of water institutions. [3] In developing new institutions and institutional arrangements, history matters. In other words, what changes are possible will depend on past institutions and institutional arrangements. For example, the type of property rights system that is in place will strongly influence the effectiveness of institutional arrangements designed to resolve conflicts. Furthermore, fundamental policy changes can reduce the transaction cost of institutional change. Sociopolitical reforms in Chile, Spain, China, and Mexico allowed these countries to make major changes in their water institutions and to develop new institutional arrangements that would not have been possible earlier. Thus we would not expect the same institution and institutional arrangements to be as important or effective in all countries or even within all regions in one country. [4] If a country has the opportunity to change or strengthen its water institutions to improve water management, there are a number of institutions which should be considered. One of the basic sets of institutions that should be examined is the one that establishes the rules for water diversions from streams, rivers, lakes and even groundwater. These rules should specify both the timing and quantity of such diversions but have enough flexibility to adjust when conditions change due to exogenous factors such as climate and the state of the economy. Developing such institutions becomes particularly difficult for rivers or other water bodies that are in two or more countries or states. The problems associated with developing institutional arrangements for transboundary water resources are discussed in the special WRR section on “Exploring Transboundary Water Conflict and Cooperation.” Similar problems are highlighted by Perry and Easter [2004] in the special WRR section on “River Basin Management: Economics, Management and Policy” where they suggest a number of institutional arrangements that have improved water resources management. The key question they raise about government policies is: “What incentives do local water and land users have to account for the positive or negative impacts their activities may have on others within the river basin?” [5] A closely related set of rules or policies are those that set the conditions for allocating and reallocating water among different uses. For example, it is important to establish who has first priority on the limited water supply in times of drought? Many countries give domestic water use first priority, but in a few countries agriculture receives first priority. However, in times of real drought, this will not be enough. Priorities will be needed within sectors so that the critical uses are maintained. Generally, top priority has to be given to human consumption and livestock water use. The difficulty arises in establishing priorities beyond these two that stakeholders will support. Thus the key is to have arrangements in place that involve stakeholders directly in setting such priorities before serious droughts occur. [6] As an economy grows and per capita incomes rise, there is likely to be a rapid growth in demand for domestic and industrial water uses. In areas where the development of new supplies is expensive, the lowest monetary cost option is to reallocate water to meet these expanding demands. This usually means shifting water from the sector using the most water, which is agriculture in the arid or semiarid parts of the world. For example, in the U.S. West, agriculture consumes 80% of the water. The same is true for much of Asia and Africa. The critical question is how to develop institutions and institutional arrangements that shift water to domestic and industrial uses without damaging agriculture. In most cases only 5 or 10% of agriculture's water can meet most demands from the other sectors. With the appropriate institutional arrangements in place regarding river basin coordination and agricultural policy, and using improved technology, this shift can be done while agricultural production is maintained or even expanded. Yet, to achieve such positive results will require careful coordination and planning involving all affected stakeholder groups. [7] Another set of institutions that will be important in the reallocation and use of water is the laws establishing water use rights. When water is plentiful, water use rights are not particularly important. Yet, when water supplies are small relative to demand, water use rights are very important. With limited water supplies effective water use requires that the rights to divert, given quantities of water at different locations and times, be specified. In addition, to improve the efficiency of water use, the rights should not only be tradable but subject to restrictions on external or third-party impacts from trades [see Easter et al., 1998]. For example, if return flows are important for downstream users, than the trades can be restricted to only the consumptive use part of the water right. [8] Our past record in establishing tradable water use rights for surface water has been much more successful than it has for groundwater. In fact, institutional development has generally been more successful for surface water than for groundwater. There has also been a gap in effective institutional arrangements for the conjunctive use of ground and surface water. Consequently, finding examples of successful institutional arrangements for managing groundwater resources is difficult, particularly for arid regions where groundwater supplies face high demand pressures. [9] One of the few examples of successful groundwater management, in an area where water demands exceed local supplies, is the southern California region. Blomquist finds seven groundwater basins in the semiarid Los Angeles-Orange County-Riverside area that are fairly effectively and independently managed with somewhat different institutional arrangements. He argues that the process of developing the institutions and institutional arrangements was important in making them effective. First, the institutional development process needs to include all affected parties. The process allowed “water users to participate in shaping the rules” [Blomquist, 1995, p. 57]. Second, the institutional development process involved learning, experimentation and adaption. In addition, several features of the institutional arrangements also helped make them effective: (1) water users pay for the management costs, (2) information on water supply conditions and water use is made readily available to all users, and (3) the water allocations to users are specific in terms of quantities withdrawn and are transferable within most of the basins. “Where users have specific and transferable rights, adjustments in water use have been made relatively smoothly in response to changing conditions and valuations of water supply” [Blomquist, 1995, p. 57]. [10] For a number of countries, water has been relatively plentiful such that the expense of establishing water use rights has been unnecessary. Now, because of growth in the population and the economy, the same countries are facing water shortages and growing pollution concerns but have not devoted the resources necessary to develop institutional arrangements to deal with the problems. As water demands and pollution concerns continue to grow, more countries will need to devise a system of water use rights and/or priorities for water use. These same countries will also face questions regarding the development of alternative arrangements for reallocating water. Without reallocating water, one possibly bad outcome could be the constraint of industrial growth and economic development while water continues to be used lavishly in agriculture. [11] An equally bad outcome would be an abrupt reallocation or “water taking” from agriculture to meet urban demands without compensation or concern for the rural communities left behind or for the impacts on the local aquatic environment. The end result may be more people crowded into urban areas, higher food prices, and the loss of aquatic habitats and species. The bottom line is that we need to begin, now, to devise the institutional arrangements that are going to be needed to guide our future water use and its allocation. We need to learn from countries such as Mexico and Spain that have already faced these problems and have made important institutional changes. [12] There are several key areas that will need attention. First, many countries need to develop institutional arrangements that help coordinate decisions within each of their river basins. For example, the U.S. needs to reintroduce a system of river basin commissions to help coordinate federal, state, and local decisions affecting U.S. river basins. An active system was in place until the 1980s when it was terminated by the Reagan Administration in an ill-advised attempt to reduce federal control over western water resources. Similarly, more innovative thought is needed regarding the use of international water resources and their allocation among competing countries. This will involve addressing concerns regarding water quantities as well as water quality. The long-standing International Joint Commission for the Great Lakes Basin is just one possible model that has served the U.S. and Canada well [World Bank, 1993]. Finally, more countries need to begin the process of developing an effective system of tradable water use rights with rules that guard against adverse third-party and environmental impacts from the trading. This will have to be done both for groundwater and surface water as well as their conjunctive use. Hopefully, this special section will start the process of devising new institutions and institutional arrangements to help meet our future water demands and water quality concerns. [13] This special section includes four articles that explore how institutional arrangements and government policies alter water use and allocation. Two of the articles deal with water resources in the United States, while the other two examine water institutions in Mexico and Spain. Livingston and Garrido [2004] not only consider how groundwater policy has been changing in Spain, they also compare the Spanish experience with that of the U.S. West. Livingston and Garrido use case studies in both the United States and Spain to derive lessons to help guide those trying to improve future groundwater policy. One of the driving forces behind groundwater policy changes has been the tie between ground and surface water and the impact groundwater use has on surface water and the environment. A second conclusion involves groundwater aquifers that are stressed by over pumping. They find that to be effective, water extraction rights need to be quantified for all users. Until they are explicitly quantified, it is difficult to limit extraction. To facilitate such a reduction in groundwater extraction, the authors suggest that some compensation should be paid to the owners of groundwater rights who decrease use. This would hold for both formal and informal rights to extract groundwater because both types of right holders would strongly oppose any noncompensated loss of their rights to extract water. Finally, the authors found that “getting the institutional arrangements rights” was much more important than charging the “right price” for the groundwater. Pricing turns out to be a rather minor issue when compared to who has access to the water. [14] In their review of groundwater management mechanisms in the western U.S., Orr and Colby [2004] also found that the link between groundwater use and surface water and the environment was a critical force driving policy changes. They emphasize the need for comprehensive institutions to protect the riparian habitat from a whole range of problems including, excessive pumping, surface water diversions, land development and water pollution. No one institutional arrangement was found to be best, and what is likely to be needed is a combination of arrangements. In the case of the San Pedro River, they show that one institutional arrangement was not adequate to deal with the growing demand for groundwater. Both the surface flow and the connected groundwater needed to be protected against over extraction. [15] Hearne [2004] finds that Mexico has made gradual but far-reaching changes in its water management institutions and institutional arrangements. As an integral part of these institutional changes, a number of new organizations have been created, such as river basin councils, aquifer management committees, and water user associations. Even well-established organizations, such as the National Water Commission, have taken on new roles. Two of the most important successes were the transfer of water management to water user associations and the creation of a national registry of water use. Despite the 1993–1996 droughts, Mexico transferred the irrigation management and water use rights for 95% of the irrigation districts' surface area to water user associations and their users by June 2000. Users' contributions to cover operations and maintenance costs increased from 43 to 72% between 1989 and 1999, an increase of over 60%. [16] Frisvold [2004] takes a broad look at U.S. farm programs and how they have affected water use throughout the U.S. but particularly in the U.S. West. Because irrigation accounts for such a large share of water consumption in the U.S. West, small changes in irrigation water use greatly affects the volume of water available for domestic, industrial and environmental uses. Over the years, U.S. farm policy has had a major impact on U.S. agriculture, and not surprisingly, on water use in agriculture. Frisvold finds that policy reforms over the past 20 years have reduced the incentives to over use water and other inputs in agriculture. This has conserved water and helped reduce nonpoint source water pollution. However, he also finds that the 2002 Farm Bill clearly retreats from these past policy reforms and is likely to increase both water use and pollution. [17] As the four articles illustrate, a great deal more work is needed to improve the water institutions and institutional arrangements in the U.S. and other countries facing serious water problems. Hearne discusses how Mexico has gradually moved to establish water use rights, improve coordination of river basin activities and turn over local water management to users. Other countries should study Mexico's changes to see which ones might work in their own countries. The difficulty of establishing water rights, particularly for groundwater, is made clear by both Livingston and Garrido and by Orr and Colby. In addition, Frisvold illustrates how changes in water institutions have to be considered within the context of existing agricultural policies. Since much of a country's water, in arid and semiarid areas, is used in agriculture, agricultural policy changes can make or break carefully crafted institutional changes in the water resources sector. [18] Finally, the question of developing institutions and institutional arrangements for international waters (which is covered in another special section) is very difficult politically. Many of the international agencies shy away from doing anything serious in this area for both political and budgetary reasons since large side payments may be necessary to achieve binding agreements. This is where researchers need to step in and work with policy makers to help develop institutional arrangements that will ease these political and budgetary constraints and make improved management of international water a reality. [19] The author would like to thank Laura McCann and William G. Gray for their thoughtful comments and editing suggestions on an earlier draft.

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