Transferable Water Entitlements Which Satisfy Heterogeneous Risk Preferences
AbstractIrrigators in Victoria have a water entitlement which is composed of a highly secure water right and additional water which may be purchased if available. Water entitlements in NSW are based on the irrigated area with the actual volume of water received in any year depending almost entirely on seasonal conditions. Musgrave and Lesueur (1973) argued that these entitlements could be replaced by a portfolio of entitlements, with each type of entitlement in the portfolio guaranteeing a nominated minimum value of water at a different probability. Thus, irrigators could purchase a portfolio of water entitlements which would suit their individual risk preferences. The purpose in this paper is to show how a water authority can construct a portfolio of water entitlements which satisfies these requirements and also to demonstrate that the entitlements in the portfolio satisfy a first degree stochastic dominance relationship. A worked example is presented in which these results are illustrated.
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Bibliographic InfoArticle provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural Economics.
Volume (Year): 35 (1991)
Issue (Month): 02 (August)
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Environmental Economics and Policy; Risk and Uncertainty;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Burness, H Stuart & Quirk, James P, 1979. "Appropriative Water Rights and the Efficient Allocation of Resources," American Economic Review, American Economic Association, vol. 69(1), pages 25-37, March.
- Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
- Hadar, Josef & Russell, William R., 1971. "Stochastic dominance and diversification," Journal of Economic Theory, Elsevier, vol. 3(3), pages 288-305, September.
- Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, vol. 36(107), pages 335-46, July.
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