The western U.S. faces trade-offs between providing water for urban, agricultural and industrial uses and allocating water to environmental needs. These competing uses have been the subject of many conflicts addressed by courts, legislatures and voluntary water trading arrangements. This paper draws upon Social Ecological Economics of Water (SEEW) and Punctuated Equilibrium Theory (PET) to evaluate the interdependent roles of voluntary transactions and mandates to provide environmental water. The article presents stages of maturation in water trading, and applies these to two evolving markets in the western U.S. Case studies of the Edwards Aquifer in Texas and the Colorado River Delta illustrate the interplay of voluntary water trading and compulsory reallocation. The cases highlight interdependencies among policy instruments and pathways of water policy innovation.
The SEEW and PET frameworks shed light on persistent difficulties faced with developing markets to acquire water for environmental needs. The case studies demonstrate SEEW concepts of patrimony and power dynamics in considering why objections to voluntary water trading endure, even though water transactions are a valuable policy instrument. The case studies illustrate PET principles on the role of economic impetus in propelling policy innovation and on pivotal contributions by academics and NGOs.