Saleth and Dinar (2000) have identified a series of endogenous and exogenous factors that will tend to promote water institutional changes. Exogenous variables of particular relevance to Australia are water scarcity, performance deterioration, financial non-viability and the emergence of technological progress. These conditions, the authors suggest, will create a need for more adaptive institutions with lower transaction costs and a pro-reform environment. All these conditions for institutional reform are highly evident in Australia. Establishing efficient and effective formal and informal institutions would therefore seem to be logical if sustainability is to be achieved to a greater extent than it currently is in the Australian context. Institutional research within an integrated water-management framework should therefore have a high priority. Nevertheless, holistic research in this area has been scarce.

While specific alternative institutional or management structures were part of the scenarios included in the ARCWIS analysis of the community’s willingness to accept water-supply innovation, this was not detailed enough to determine any generic findings. Are there any general rules in relation to institutional structure and functions that can assist in the implementation of procedurally just decision processes? This type of question can be answered in the community context in urban water-resources management. Ostrom (1990) has provided extensive work on understanding the principles and criteria for successful institutional arrangements for management of common property resources for small and largely rural communities. The same level of analysis will be required for alternative forms of governance for urban water. There is a need for social and organisational research that focuses on the generics of institutional structure, decision-making processes and implementation responsibilities.

This research should be conducted with water-resource decision-makers who can provide ideas for alternative institutional arrangements and functions that could support alternative but coherent arrays of local, meso and whole-of-system management. These could be considered in the light of each element of the water cycle. It should deal directly with issues such as the appropriate communication and responsibility networks, the role of legislation, public versus private water-supply responsibilities, transaction costs, and so on. For sustainability purposes these should be interpreted in the light of social, economic and environmental analysis. As the previous discussion in this chapter indicates, the social analysis and preferred network identification and the overall sustainability goals of whole-of-water-cycle management will also need to incorporate public perspectives to create a management framework that will create ongoing flexibility for change.

The investigations need to be inclusive of differing breadth of decision-making from macro-allocation decisions (for example, inter-regional transfers from rural to urban regions) to more micro decisions (alternative localised stormwater management). The need for social and institutional bottom lines has been shown to be imperative at both levels. Both levels also incorporate much more than the current rational decision-making paradigm. There is a need for the incorporation of structures and processes that can cope with emotions and ethics of fairness and organising frameworks such as trust and accountability. Perceived and acceptable risk is also particularly important when water quality-related issues are discussed. These variables can be measured in an ex-ante and formative manner (Kasemir et al. 2003) to derive an adaptive-learning approach to urban water reform.