Allocation policies and laws are enormously important in coping with climate variability. We need to develop allocation policies that address explicitly the temporal variability of water supply. I disagree strongly with the remark made yesterday that "We need to learn how to waste water wisely." Rather, we need to think about how we can best allocate whatever water is available at any given time—very different from wasting water wisely. To allocate rationally, we must expand our objectives beyond those that prevent people from killing each other over water disputes. There's one way of rationalizing water allocation without addressing the problem directly and that is to develop a water market. For many objectives a market is an effective means of allocation, although for other objectives it is not.

To have a water market, two conditions must be satisfied. First, the seller must be able to transfer the goods to the buyer. Second, the cost of the transaction cannot be prohibitive. Under eastern water law, establishing a water market is impossible, because you cannot market the goods—you don't own them. Under western water law, establishing water markets is not quite—but almost—impossible. Where no externalities (such as transfers between similar users in nearby locations) are involved, transfers can occur. But where externalities are involved, as in the majority of cases, western water law makes it very difficult to determine just what the seller can sell. Appeals to the court make the transfer costs enormous. To develop a water market in the West, water law must be modified to provide for an administrative procedure, not a court procedure, for defining which externalities are allowable and which are not. Systems analysis tools could be used for making decisions about externalities on a real-time administrative basis. In some cases, provisions for the sale also must be made.

Of course, many allocations shouldn't be left to the market. Examples of nonmarket types of allocations include allocations measures for water quality, instream flow, social welfare, and fire fighting.

Finally, creative water management involves devising ways to promote efficiency of use. Perhaps creative is not the right word—effective and nontraditional might be better terms. The answer to the question of how to be creative is short and sweet. If you want to be creative, provide a method to review and obtain the benefits of joint operations, with demands dependent on water availability. My experience is that, in the long run, people will thank you for it.