Reformation of the policies for allocating Australia's water resources has now assumed profound political, economic and social significance. However, there are marked contrasts between urban and agricultural sectors, in the approach to policy reform. Whereas governments have embarked on a range of mandated initiatives to alter or constrain the behaviour of urban dwellers, the approach adopted for irrigated agriculture has been characterised by an emphasis on markets and private property rights. This paper explores the extent of these disparate and potentially incongruous policies by focussing primarily on the states with the largest irrigation sectors, New South Wales and Victoria. Whilst acknowledging the high transaction costs of individual households engaging in a water market, the paper argues for more liberal market participation by urban water authorities on behalf of their constituents. The paper also calls for more rigorous economic assessment of the plethora of water-saving and demand-management strategies being proposed in the urban water setting.

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