Event Title

Illiquid Markets: Water Trading in the Western Us

Presenter Information

Eric Edwards

Location

USU Eccles Conference Center

Event Website

http://water.usu.edu

Start Date

4-5-2016 11:00 AM

End Date

4-5-2016 11:15 AM

Description

We examine the economics of the water rights and markets in the western United States. This is the region of North America where water supplies are most limited in face of rapidly growing demands. The striking feature of water markets is how unlike those for other commodities they appear. In particular, the law-of-one price does not hold. Agricultural commodities, for instance, empirically do not have systematic price differences that persist over time. This is not the case for water. In water markets, municipal and industrial users typically pay much more than do agricultural agents to acquire and use water. We explore the role of historical property institutions in explaining limited water trading and the lack of the appearance of the law-of-one price and then estimate the efficiency losses of limited trades and the options for adjusting existing rights arrangements. The institutional structure surrounding water rights and markets helps explain why the law-of-one price does not prevail. If transaction costs are positive (and in the case of water, very high for reasons we explore), then the initial distribution and nature of water rights has important long-term allocative implications for the economy. Decisions about water often are made through judicial, legislative, and bureaucratic processes without direct price and cost considerations. This situation creates both challenges and opportunities for economists in research on water and in promoting more efficient water distribution, investment, and use.

Comments

An oral presentation by Eric Edwards

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Apr 5th, 11:00 AM Apr 5th, 11:15 AM

Illiquid Markets: Water Trading in the Western Us

USU Eccles Conference Center

We examine the economics of the water rights and markets in the western United States. This is the region of North America where water supplies are most limited in face of rapidly growing demands. The striking feature of water markets is how unlike those for other commodities they appear. In particular, the law-of-one price does not hold. Agricultural commodities, for instance, empirically do not have systematic price differences that persist over time. This is not the case for water. In water markets, municipal and industrial users typically pay much more than do agricultural agents to acquire and use water. We explore the role of historical property institutions in explaining limited water trading and the lack of the appearance of the law-of-one price and then estimate the efficiency losses of limited trades and the options for adjusting existing rights arrangements. The institutional structure surrounding water rights and markets helps explain why the law-of-one price does not prevail. If transaction costs are positive (and in the case of water, very high for reasons we explore), then the initial distribution and nature of water rights has important long-term allocative implications for the economy. Decisions about water often are made through judicial, legislative, and bureaucratic processes without direct price and cost considerations. This situation creates both challenges and opportunities for economists in research on water and in promoting more efficient water distribution, investment, and use.

https://digitalcommons.usu.edu/runoff/2016/2016Abstracts/2