Demographic changes and existing water use patterns have placed tremendous pressures upon water supplies, particularly in the West. Global climate change will exacerbate pressures on water resources. The gradual warming of the atmosphere is certain to change the distribution and availability of water supplies, with potentially severe consequences for freshwater supplies. While climate change will have a significant impact on water resources through changes in the timing and volume of precipitation, altered evaporation rates, and the like, the precise nature, magnitude, timing, and distribution of such climate-induced changes are unknown. This uncertainty complicates the task of water managers who are already faced with escalating demands.
This article argues that climate change, and its projected effects on water use and supply, calls for a fundamental reexamination of water institutions. In particular, this article suggests that market-based institutions are well suited to address the additional pressures on water supplies due to climate change. Many aspects of water markets, including their flexibility, decentralized nature, and ability to create and harness economic incentives, make them particularly well suited to address the uncertain water forecast. A gradual shift toward water marketing and market pricing will improve the management of water supplies, ensure more efficient allocation of available water supplies and encourage cost-effective conservation measures.