As water insecurities increase globally, there is an increasing emphasis on demand-management approaches, which for the most part emphasize market mechanisms as a means to ensure water security for all.

This paper shows that water markets often exacerbate failures in water governance (manifested as economic or physical water scarcity) and that the third party effects associated with water trading (which have been well documented) are only the most evident symptom of the underlying governance problem.

This is illustrated in this paper by the experiences in the western United States and southeastern Australia, both regions in which sophisticated institutional frameworks have been developed that recognize water as a limited resource and an economic good, and which facilitate the re-allocation of water through market mechanisms such as water trading.