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Third-party effects of water trading and potential policy responses

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  • Anna Heaney
  • Gavan Dwyer
  • Stephen Beare
  • Deborah Peterson
  • Lili Pechey

Abstract

A key feature of water policy reform in Australia has been the separation of water access entitlements from land titles and the establishment of markets for water. However, the separation of water entitlements from land failed to account for a number of characteristics that were implicit in the joint right. This has given rise to a number of third party effects as water is traded in an incomplete market. This paper describes four third-party effects of water trade; reliability of supply, timeliness of delivery, storage and delivery charges, and water quality and examines policy responses to address these effects. The discussion draws on the concepts of exclusiveness and rivalry to determine the applicability of property rights and other solutions to the third-party effects of trade. It is likely that many of the third-party effects of trade discussed in this paper do not warrant policy intervention at the national or state level, but intervention at the local level may be warranted. The costs of addressing some third-party effects may outweigh the benefits. Where there are significant gains from trade, the existence of these third-party effects should not been seen as a reason to impede trade. Copyright Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd 2006.

Suggested Citation

  • Anna Heaney & Gavan Dwyer & Stephen Beare & Deborah Peterson & Lili Pechey, 2006. "Third-party effects of water trading and potential policy responses ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 277-293, September.
    • Handle: RePEc:bla:ajarec:v:50:y:2006:i:3:p:277-293
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    References listed on IDEAS

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    1. Peterson, Deborah C. & Dwyer, Gavan & Appels, David & Fry, Jane, 2004. "Modelling Water Trade in the Southern Murray-Darling Basin," Staff Working Papers 31925, Productivity Commission.
    2. Appels, David & Douglas, Robert A. & Dwyer, Gavan, 2004. "Responsiveness of Demand for Irrigation Water: A Focus on the Southern Murray-Darling Basin," Staff Working Papers 31924, Productivity Commission.
    3. Beare, Stephen & Newby, Jonathan C., 2005. "Incomplete Markets, Excluded Goods and Natural Resource Management," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137785, Australian Agricultural and Resource Economics Society.
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    Cited by:

    1. Edwyna Harris, 2011. "The Impact of Institutional Path Dependence on Water Market Efficiency in Victoria, Australia," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(15), pages 4069-4080, December.
    2. Guerra Vallejos, Ernesto & Bobenrieth Hochfarber, Eugenio & Bobenrieth Hochfarber, Juan & Wright, Brian D., 2021. "Solving dynamic stochastic models with multiple occasionally binding constraints," Economic Modelling, Elsevier, vol. 105(C).
    3. Khan, Shahbaz & Rana, Tariq & Hanjra, Munir A. & Zirilli, John, 2009. "Water markets and soil salinity nexus: Can minimum irrigation intensities address the issue?," Agricultural Water Management, Elsevier, vol. 96(3), pages 493-503, March.
    4. Juliane Haensch & Sarah Ann Wheeler & Alec Zuo & Henning Bjornlund, 2016. "The Impact of Water and Soil Salinity on Water Market Trading in the Southern Murray–Darling Basin," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 1-26, March.
    5. Mallawaarachchi, Thilak & Auricht, Christopher & Loch, Adam & Adamson, David & Quiggin, John, 2020. "Water allocation in Australia’s Murray–Darling Basin: Managing change under heightened uncertainty," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 345-369.
    6. Chi H. Truong, 2014. "A Two Factor Model for Water Prices and Its Implications for Evaluating Real Options and Other Water Price Derivatives," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(1), pages 23-45, March.
    7. Steven A. Conrad & Murray B. Rutherford & Wolfgang Haider, 2017. "Profiling Farmers’ Preferences about Drought Response Policies Using a Choice Experiment in the Okanagan Basin, Canada," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 31(9), pages 2837-2851, July.
    8. Brooks, Robert & Harris, Edwyna, 2014. "Price leadership and information transmission in Australian water allocation markets," Agricultural Water Management, Elsevier, vol. 145(C), pages 83-91.
    9. Hughes, Neal, 2009. "Management of irrigation water storages: carryover rights and capacity sharing," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47642, Australian Agricultural and Resource Economics Society.
    10. Donna Brennan, 2008. "Missing markets for storage and the potential economic cost of expanding the spatial scope of water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 471-485, December.
    11. Brooks, Robert & Harris, Edwyna, 2008. "Efficiency gains from water markets: Empirical analysis of Watermove in Australia," Agricultural Water Management, Elsevier, vol. 95(4), pages 391-399, April.
    12. Potgieter, Petrus H., 2010. "Water and energy in South Africa – managing scarcity," MPRA Paper 23360, University Library of Munich, Germany.
    13. Skurray, James H. & Roberts, E.J. & Pannell, David J., 2013. "Hydrological challenges to groundwater trading: lessons from south-west Western Australia," Working Papers 161073, University of Western Australia, School of Agricultural and Resource Economics.
    14. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    15. Sarah Ann Wheeler, 2022. "Debunking Murray‐Darling Basin water trade myths," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 797-821, October.
    16. Lankford, Bruce, 2012. "Fictions, fractions, factorials and fractures; on the framing of irrigation efficiency," Agricultural Water Management, Elsevier, vol. 108(C), pages 27-38.
    17. Guifang Li & Dingyang Zhou & Minjun Shi, 2019. "How Do Farmers Respond to Water Resources Management Policy in the Heihe River Basin of China?," Sustainability, MDPI, vol. 11(7), pages 1-19, April.
    18. Brennan, Donna C., 2008. "Missing markets for storage and the potential economic cost of expanding the spatial scope of water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-15.

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