Hard for me to know whether you know something important I have missed, or whether you’ve missed my…
Michael Harris
1

Without going too deep into it:

First developed in Colorado, generally adopted by all states west of the Mississippi. The general gist of it, and it varies by state, is that the first person to use water for a beneficial purpose, gains a treadeable right to use that water. They can sell or lease that water right. This applies in CA, in fact, here are some water rights for sale if you are interested.

http://www.water.ca.gov/watermaster/aboutwatermaster/buy_sell.cfm

As to my comment about allocating water that does not exist, this has more to do with the Colorado River Compact. It was negotiated to give water to all involved states at a time of historically high water ammounts in the river, and allocation was decided based on an absolute ammount rather than a portion of available water, thus leading to allocation of water that does not exist. This is more to do with states against states rather than individual water users trading rights.

I have no idea how to get rid of the dumb wikipedia in text citations. Sorry.

Re-reading your original article, it is worth noting that your summary of Australian water rights is actually an incredibly adept description of the water rights system in the western states, on a broad scale. There are of course differences, but it is worth noting that there is a market based system in the west, that pre-dates the Australian system by close to a century. Again, it goes back to the fact that in times of drought more water rights exist than does water in the western US.