Water markets even though not perfect and require a lot of effort to establish are considered as a robust tool to address water management issues around the world. However, the existing literature does not provide an optimal water resource management policy. To create a perfect water market, the government needs to identify the potential number of suppliers/producers and consumers of water against various extraction/supply/production rates of water, i.e., to identify a supply and a demand curve for number of suppliers/producers of water against each production rate in economy. This article presents a theory which is practically applicable for an optimal dynamical water resource management policy (JEL H20, H23, H27).
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