Aligning Policy and Real World Settings: A Theoretical and Empirical Analysis of the Effectiveness of Market Based and Community Governance Instruments in Managing a Commonly Shared Water Resource

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"The actions of people interacting together to govern common pool resources are guided and governed by formal legislation and regulations and 'informal' attitudes, shared norms and heuristics. Tensions potentially arise when sets of rules intersect and interact, especially sets of formal and informal rules. If those crafting or changing formal rules do not understand how particular sets of rules affect actions and outcomes in a particular ecological and cultural setting, these rule changes may result in rapid, unexpected, and possibly perverse outcomes (Ostrom, 2005). Thus, the effectiveness and durability of a novel set of formal rules and entitlements depends on the degree of integration with existing institutions and the capacity of mechanisms enabling people to adjust to new and changing circumstances. "This paper formally evaluates the durability and cost effectiveness of a novel set of formal rules regarding water use in an irrigation region of Australia and their compatibility with extant informal rules. A rising saline aquifer in the Coleambally Irrigation Area, a corollary of water abstraction and irrigation application, constitutes a common pool resource, characterised by costly exclusion and rival utilisation for regional irrigators. We report on theoretical insights from institutional analysis, network theory and deliberative and participatory methods, and empirically based outcomes of different institutional structures observed in an experimental simulation. Experimental economics was used to test the efficacy of both formal market institutions and group crafted voluntary social contracts to manage the common pool water resource. Based on allied biophysical research, the experimental setting relies on a catchment analogue, which represents the economic decision making and trading environment facing farmers. Observed behavioural responses to policy initiatives were compared according to two metrics: aggregate groundwater recharge and farm income (expressed as player payments) net of non- compliance penalties. The economic and environmental effectiveness and durability of a formal market institution existing with the set of informal rules is analysed and evaluated."



IASC, water resources, common pool resources, irrigation, rules, institutions, experimental economics