In the past decade far-reaching reforms have taken place in the Australian water industry. Extensive restructuring of water administration has been accompanied by increased evidence of willingness by public agencies to consider alternative institutional arrangements to the traditional regulatory approach to water allocation and use. In irrigated agriculture, a market-based system linked to enforceable property rights of water is seen as preferable to rule-based management of water resources. However, significant social and economic considerations and political realities constrain the unfettered operation of water markets. The challenge facing the irrigation industry in Australia is to put in place institutional arrangements which reflect the most appropriate mix of incentive-based and regulatory mechanisms for water management. ¿ American Geophysical Union 1993