[jandrese]

The problem is that fresh water is a scarce resource. Give it away for free and it will be used inefficiently and you will run out. This is an area where markets are an efficient solution, so long as the scarcity problem does not become so pronounced that the poor are unable to afford water. If this happens it is a policy failure and an external force (the government) would have to step in to insure that everybody has enough water to at least survive, probably by shutting down some big industrial users to reduce demand and lower the price.

[saint_fiasco]

The government can also intervene by actually paying the price. Like food stamps for water.

[QML]

In California, I believe the state actually does subsidize the price of water for farmers. However, as a result of water being significantly under market price, farmers are not incentivized to undertake water conservation efforts -- even though in times of drought, that aggravates the water supply.