Using water markets to improve environmental quality: Two innovative programs in Nevada

Economists have long advocated the use of market mechanisms as a means to improve environmental quality at minimum cost. Voluntary water purchase programs are an example of such a policy. This paper examines the structure and performance of two water right purchase programs operating in Nevada: the Truckee River Water Quality Agreement and the Lahontan Valley purchase program administered by the U.S. Fish and Wildlife Service, the State of Nevada and the Nature Conservancy. Statistical analysis of the latter program indicates that it is performing efficiently. Notably, personal factors prompt water sales, and the least productive rights (e.g., those appurtenant to poor soils) are sold to the government. Concluding comments offer suggestions about ways to improve program performance, including allowing the sale of fractional water rights.