Institutional economics provides an alternative framework for analyzing existing and proposed water policies. This approach differs from conventional economics in both normative and positive aspects. The normative model employs the concept of instrumental value, rather than efficiency. Water policies are judged based on whether they foster the long-run viability of economic and ecological systems, not on whether they maximize net present value. The positive model is holistic and more inclusive than standard market models. The role of technical circumstances, nonmonetary goals, interest groups, and power are discussed. The implications of both positive and normative models for water policy are discussed. A set of questions useful in understanding or predicting the prospects for change in water policy is provided, and an institutionalist perspective is offered on water markets. ¿ American Geophysical Union 1993