Water markets are a public policy tool that can help to allocate water to its highest value uses, creating more efficient outcomes. This paper presents a classroom simulation that exposes students to some of the practical ramifications of establishing a water market and the outcomes that result. The activity has students role-playing as various businesses that require water for operation and assigns initial water endowments to some of the agents. Students must buy and sell water on a market and attempt to maximize their individual welfare. The students gain a deeper understanding of the welfare gains from water markets and learn how a lack of information and negotiating power can create inefficiency.

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