Transaction Costs in Water Markets in the Heihe River Basin in Northwest China

This paper identifies and analyses the transaction costs involved in the implementation of a tradable water right system in the Heihe River basin in northwest China. Both primary and secondary data were used to achieve the objectives. The results indicate that water markets in the Heihe River basin are not popular. However, transaction costs were not the primary source of market dysfunction. In some cases transaction costs were high enough to block water trading while in other cases transaction costs were very low and insufficient to limit the emergence of water markets.