This study examines the issue of third-party effects of water transfers in California from the economic, institutional, and legal perspectives. It also evaluates potential mechanisms for resolving the conflicts between those wishing to trade in water and the wider community. Drawing on a range of data sources, including a new database on water transfers and an extensive set of interviews with water users and county officials, the analysis aims to answer the following questions: How has resistance to water transfers affected California's water market to date, and what are the likely effects of that resistance? What distinguishes cases where conflicts have been successfully resolved from the stalled deals? Are revisions of state water law a necessary or desirable means for dealing with third-party issues, or should solutions be left to local institutions? We begin with some background on the water market and the rise in local resistance to it.