The Role of Market in Optimal Water Resources Allocation and Efficacious Factors Influencing the Efficiency of Water Markets

Recently, the existing mechanism of the market has been considered as an efficient method for allocating water resources in some developed and developing countries. The necessary conditions to establish an efficient water market and its economic consequents must be recognized before using this method in Iran. The purpose of this study is to investigate the economic consequences and present practical solutions based on scientific foundations and international experience to develop an efficient water market in Iran. Also, economic consequents of water markets were studied in Mojen and Ardabil. Results show that water markets usually have been constituted in arid and semi- arid regions. Although water resources have a national characteristic, however, water concession can be traded. For this purpose, water rights must be clearly defined and property rights enforced by social or legal institutions. Also separating water rights from that of land, enforcing transactions, decreasing administrative costs and maintaining water delivery infrastructure have decreased transaction costs and consequently promoted water markets efficiency. Sometimes, governments or market institutions have mitigated negative externalities. Furthermore, results show that the price of water is close to the economic value of water in Mojen and Ardabil water markets and the water market has increased the user's revenue.