A note on contradictions in Australian water policy

The success of Australia's water markets is now well documented and confirms the hypothesised usefulness of water markets as a policy tool, at least in the context of places like the Murray–Darling Basin. In this article, we reflect on the theoretical benefits of water markets as a point of reference against which to scrutinise the current penchant of government to subsidise irrigation infrastructure in efforts to address over-allocation. We conclude that this approach results in a serious contradiction, unless there are grounds for believing that government has insights into the dynamic efficiency of the irrigation industry that exceed the coordination power of the market.