Establishing water rights is an appealing measure, which conveys a sense of orderliness and rationality that contrasts with a situation of assumed wastage, environmental degradation and con.icts. Transferable entitlements increase economic efficiency, while providing a compensation mechanism. The paper distinguishes between formal rights de.ned through a bureaucratic process and flexible allocation rules designed through a gradual and continuous process of negotiation. It investigates the prerequisites, advantages and drawbacks of these two kinds of water rights, and examines how they apply to the specific natural and historical conditions of Sri Lanka. It concludes by showing that policy models must be tailored to the local situation and be based on what is feasible rather than on what is considered desirable.

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