Water market is a mechanism for water allocation based on water allowance which leads to equilibrium price in market. Now, in some parts of Iran informal water markets exists, but the adopted policy by the officials in the water Sector of the country is to establish formal water markets. One of the most important factors in the success of water market is the required institutional context. The aim of this study is to evaluate the institutional structure needed for establishing water market in Zayande-rood river. The required data was provided from all water experts of Zayande-rood river through survey. The population, consists of managers, academicians, lawyers and engineers in water sector. data was collected through face to face interview and completion of Structured questionnaire. In the first section, the governance structure in the region evaluated by using the model of institution–performance interaction. In the second section, using the Ostrom’s Framework for Analysis and Development (IAD), the situation of necessary rules for the existence and success of water market at the present regional situation is evaluated. The results from the first section, show that in the performance of water institution Water administration has a more important role than water law and policy. Also the general evaluation of the water section performance in four practical, physical, financial, economical and equity components show that physical component is more effective than other factors. In the second section evaluation results set up rules for governing water market boundary, position, authority, scope, information, aggregation and payoff show that the payoff and aggregation rules are the most preventive rules required to establish water market in the area. The overall conclusion of this study shows,that in the current situation, the institutional context need to be strengthen for the establishment of formal water markets. Keywords: Water market, Water governance structure, Water law and policy, Institutional analysis, Water right, Water sector performance
