Water policies throughout the world often avoid market-determined allocations. In this article, we focus on case studies of Israel and California. Despite major cultural and political differences, it is found that water is heavilty controlled through similar administrative mechanisms in both areas. Moreover, in both cases, these controls have led to inefficient allocation schemes favoring agriculture at the expense of other uses. This article examines the institutional factors that have led to such controls, and argues that adopting a new regulatory framework similar to that used to regulate electricity can still meet social concerns while dramatically improving economic efficiency.