Governments are developing policy to reallocate water to environmental uses in many of the world's major river basins developed for irrigation. These policies can place considerable pressure on the irrigation sector to adjust, and may be perceived to conflict with food security and rural development goals. This paper reviews the literature examining opportunities to reduce irrigation district and third party externalities associated with rapid adjustment to water reallocation, with emphasis on recent water reform in the Murray–Darling Basin (MDB), Australia. We focus on opportunities to improve joint environmental and regional economic outcomes, by targeting and sequencing policy instruments operating at different scales.

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