Allocating a ‘Scarce’ Resource, Water in the West: More Market‐like Incentives Can Extend Supply, But Constraints Demand Equitable Policies

. The issue of water marketing in the western United States has generated much discussion in recent years. This is due, in part, to the commonly accepted notion that western water has become “dangerously” scarce. The nature and extent of this scarcity are examined in detail. While water may not be scarce in the West, cheap water certainly is. The optimality of water marketing is also dependent upon various ceteris paribus assumptions. These assumptions are questioned due to certain bydrologic uncertainties and external costs associated with the use and development of western water. Considerable benefit, particularly in expanding residential supply, can be achieved from more market‐like incentives to conserve in use. But the resource's social value about rights argues for policies based on equitable sharing.