Conventional economics provides an inadequate guide for water management because water does not behave like a typical commodity. It is not man-made, its supply is variable and mobile, measurement is imperfect, and its allocation is shaped by complex social, legal, and institutional arrangements. Property rights are layered and ambiguous. Prices often do not function as standard economic theory predicts, and water markets often fail to operate as assumed. While scarcity and financing challenges are real, treating water as a conventional market good obscures reality and impedes the effective response to scarcity.

Within this context, water credits can play a useful but inherently limited role. Their value lies at the “periphery” of water governance—spaces not tightly constrained by existing laws and institutions, which are often politically difficult or impossible to reform. In water, generally, innovation tends to emerge in peripheral spaces rather than through systemic legal change. I shall elaborate these arguments through experiences with water credits and with water and carbon markets in the US.

Ultimately, economics can contribute meaningfully to solving water problems only if it abandons a narrow vision of water as a conventional commodity and engages with water realistically. Persisting with standard textbook approaches perpetuates failure; rethinking the economics of water could offer a pathway towards more effective and hopeful solutions.