Liberal Theoretical Foundation for Government Intervention in the Water Market, Government Failure and Government Institutions in the Murray Darling Basin

Abstract

Earlier research has examined the research on the limits of market-based water governance and the current progress and future direction of legal and judicial oversight of the Murray Darling Basin. This paper seeks to briefly re-iterate the theoretical foundations for justifying the higher degree of governmental intervention in the Murray Darling Basin, in seeking to comprehend why water market failure occurred for the period 1994-2010 Stronger Federal government intervention in the management of the Murray Darling Basin commenced in 2007, marked by the passing of the Water Act 2007. Theoretical study on government failure is explored to further comprehend why for the period of water reform 1994-2010 no mixed market – governmental institutional framework led to the appropriate balance of environmental protection and transition economy investment strategy for the Murray Darling Basin. Policy development in the area of transition economy investment strategies, which include re-training/re-skilling to allow for a diversified low-water intensive irrigator income stream, has been piecemeal.

The sequence of selected theoretical work considered is divided into two sections (i) market failure; and (ii) governmental failure.

The theoretical work considered in the context are the Coase theorem, the two fundamental theorems of welfare economics, public goods and social choice theory/theory of groups, theories of justice, mechanism design theory, negotiation/bargaining theory, actor network theory and new collaborative governance. Most of the theoretical work examined is either contained within or closely related to new institutional economics.

(Drafted 2005-2011, under review)

Keywords: water market, market failure, government failure, institutions