Economists can agree about many things. The importance of tradable property rights in scarce fresh water is a case in point. 

The essence of the problem that arises when water is scarce - be it clean in-stream water, water behind a hydro dam, or water for industrial or household uses - is to determine which of the contending claims on the scarce water is the most highly-valued. 

Value is subjective and the critical and most commonly-used measure of relative value is willingness to pay, as chagrined would-be buyers of homes or TradeMe products know all too well. 

Imagine trying to allocate a home or a product on TradeMe by a consultative community process that gives iwi a preferred position, and where no one is obliged to reveal how much they are really prepared to pay.

The whole thing would get very political very fast with lots of grandstanding about the importance of one's own claims to the resource. The costs of the process would become prohibitive in many cases, and TradeMe would surely cease to exist.

Yet that is how scarce surface water has to be allocated in the absence of a system of well-defined private property rights based on long-term tradable permits.

Allocation by political processes rather than market prices fails to confront the successful claimant with the cost to the community of the forgone opportunity to use the scarce resource differently.

In contrast, a market-based auction system confronts the successful buyer with the cost of depriving the next highest bidder of the opportunity to use the resource differently. Point-source polluters and extractors are confronted with the costs they seek to impose on in-stream users, and vice versa.

Of course nothing in human affairs is perfect. A market in tradable water rights would not be perfect. Property rights can be difficult to design and enforce. But an allocation mechanism that does not oblige contending self-interested claimants to put up or shut up is bound to be seriously imperfect.

In 1995, a report by CS First Boston New Zealand reviewed New Zealand's problems of poor water allocation, wasteful use and health and other risks from poorly-policed quality. It recommended greater certainty in rights to use water, greater use of price mechanisms to allocate water and sharpened supporting governance/ownership structures. This report covered surface water and piped water.

Three changes to the Resource Management Act were recommended in order to improve resource allocation.

The first would allow water permits to be held for much longer than 35 years; the second would ensure that water permits could be held but not used so that their owners could use them to enhance in-stream flows; and the third would explicitly allow local authorities to tender permits.

In 2005, Wellington-based Professor Lew Evans and Kevin Counsell published detailed proposals for allocating surface water efficiently.

They explained the importance of secure long-term tradable water rights with well-designed supporting institutional arrangements to facilitate trading.

A technical section showed how water values might be usefully assessed when markets are thin, or non-existent. An essential early step was for regional councils to set upper limits to the amount of water that could be taken.

In March 2013, the Ministry for the Environment published a government discussion document on fresh water that confirmed the continuing existence of the problems of growing scarcity, poor allocation, and variable quality. 

The good news is that the government's document identified the options of extending the 35-year limit and tendering the supply of additional permits.

The bad news is that it gave little or no evidence of progress in developing Evans and Counsell's proposals. 

In July 2013, the government announced that it will create a centralised National Objectives Framework and a new freshwater collaborative planning option that would "give communities and iwi a greater say in planning what they want for their local waterways and how they should be managed". 

How this central planning framework of national direction, guidance and control will be reconciled with a desire for greater community say, and thereby presumably local autonomy, is unclear.

Follow-up measures in "the next few years" would include national direction and guidance on many aspects and "more work" on tradable rights and incentives for efficient use of water.

That is nice, no hurry. Perhaps some concrete proposals for tradable rights could emerge after the next couple of changes in government?

In the latest development, the New Zealand Institute of Economic Research this week published a discussion document of its own on surface water management issues.

The NZIER similarly identified the need to find better arrangements to deal with increased competition for surface water, improving water quality, and facilitating major investments involving water.

It echoed the above 1995 and 2005 papers in recommending tradable water rights, supported by favourable institutional arrangements. 

While stressing that the main problem with water policy currently was the uncertainty it was generating, the report was puzzlingly reticent about mentioning property rights and did not mention the 35-year constraint on the duration of a permit. However, it rightly recognised that uncertainty could be reduced as scientific knowledge about questions such as minimum flows and maximum takes improved.

The NZIER also stressed the need for central government to provide the overarching water management principles and framework for tradable water rights, dealing with the design of allocation and compensation mechanisms, and environmental aspects.

It supported the National Objectives Framework, at least to the extent that it was a move in this direction.

In short, the economists agree about the importance of creating well-supported tradable rights in scarce surface water. The apparent lack of progress towards this goal in the Ministry's discussion paper is disappointing.

On a more positive note, the Land and Water Forum has made encouraging progress in the last four years towards creating a collaborative spirit for discussing these difficult water allocation issues.  That is what is needed if a tradable permit system is to be agreed upon.

Yet collaboration without a tradable permit system for confronting water claimants with the costs they seek to impose on others is collaboration at risk.

Expediting work on tradable permits should be a priority in this area for any incoming government.