Market-based governance and water management: the limits to economic rationalism in public policy

Markets are powerful mechanisms for social coordination but critics claim that there are potential negative impacts. Market exchange can exacerbate inequalities in society. The invisible hand of market decision-making can lead to major social choices not being publicly aired. Market mechanisms can crowd out moral motivations with negative consequences. Water markets have long been promoted as one of the most efficient ways to reallocate water by economists. Focusing on an exemplary implementation of the water market in Australia, our results suggest that some features of the way market-based governance systems work match the concerns of market critics.