Interjecting Economics into the Surface Water Dialogue

This paper applies the conceptual lens of economic efficiency as a criterion by which to evaluate surface water in Texas. We identify two major problems. First, Texas has a water allocation problem limiting the ability to substitute groundwater for surface water to move water between river basins and to facilitate transfers within a river basin. Second, surface water is both underpriced and unresponsive to drought conditions preventing it from being used at its highest and best use. We propose a variety of partial solutions, which include facilitating greater reliance on water markets as well as a water tax that would vary across regions and over time to encourage conservation.