Water markets form differently across the western United States, depending on the relative importance of water supply uncertainty and impediments to water transfers. In many locations, trades take the form of short-term leases of water, allowing the underlying property rights to remain unaffected. In other regions, water right transfers predominate. We quantify the relative effects of economic, hydrologic, and state-level institutional variables on a water agency’s decision whether to lease or purchase water rights. Econometric analysis of 3,806 transactions reported in the Water Strategist over 1990 supports the conclusion that market structure varies across states in accordance with local hydrologic and economic conditions. These conditions call for alternative forms of economic organization to achieve efficiency
