Mutual monitoring in a tradable water rights system: A case study of Zhangye City in Northwest China

Tradable water right systems are becoming important ways to achieve distributive efficiency in water resources. In 2002, Chinaʹs Ministry of Water Resources initiated a pilot project in Zhangye City in Northwest China. The project was designed to establish a new water use rights system with tradable water quotas with the hope of reallocating water resources more efficiently through market-based instruments. However, the tradable water right system is not well enforced. Based on both primary and secondary data, we find that mutual monitoring can improve the effectiveness of a water allocation and trading program. For both surface water and groundwater irrigation systems, the conditions needed to stimulate mutual monitoring include: (1) a hierarchical management system; (2) well defined water rights or quotas; (3) control of total water quotas and water sources by the upper hierarchy; and (4) an approximate balance between the water supply or pumping capacity and the water quota. We describe also the institutional requirements for stimulating mutual monitoring.