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Effects of competition on environmental water buyback auctions

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Author Info

  • Iftekhar, M.S.
  • Tisdell, J.G.
  • Connor, J.D.

Abstract

As water extractions from the world's rivers have grown, flows available for the environment have dwindled. In many parts of the world governments are now considering strategies to restore environmental flows. One strategy is for a government to buyback water from irrigators for the environment with annual lease arrangements. In this paper we have studied the role of market competition (in terms of environmental water demand and number of sellers) in determining the performance of multi-round environmental water buyback auctions using a stylized agent based simulation model. The results suggest that rent extraction lowers as the number of bidders increase and water demand decreases. However, we find significant differences in the way changes in demand and supply influence rent extraction. Reduction in water demand has much greater impact on rent extraction than increasing the number of bidders in the market. Further, in wet years (when supply is abundant relative to demand) bidders engage in more competitive bidding compared to cases in dry years. Results from the analysis indicate that government agencies benefit more from arranging buyback tenders (1) with a small target relative to tenders with a large bidder population and (2) with greater opportunities for the bidders to learn from the market in wet years compared to dry years.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378377413001340
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Bibliographic Info

Article provided by Elsevier in its journal Agricultural Water Management.

Volume (Year): 127 (2013)
Issue (Month): C ()
Pages: 59-73

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Handle: RePEc:eee:agiwat:v:127:y:2013:i:c:p:59-73

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Web page: http://www.elsevier.com/locate/agwat

Related research

Keywords: Agent based simulation model; Environmental water holder; Multi-unit auction; Water buyback;

References

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  1. M. Iftekhar & A. Hailu & R. Lindner, 2012. "The Effect of Bidder Heterogeneity on Combinatorial Conservation Auction Designs," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(1), pages 137-157, September.
  2. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
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  8. Michael R. J. Hill & D. Glen McMaster & Tom Harrison & Aron Hershmiller & Trevor Plews, 2011. "A Reverse Auction for Wetland Restoration in the Assiniboine River Watershed, Saskatchewan," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 59, pages 245-258, 06.
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  14. Atakelty Hailu & Sophie Thoyer, 2007. "Designing Multi-unit Multiple Bid Auctions: An Agent-based Computational Model of Uniform, Discriminatory and Generalised Vickrey Auctions," The Economic Record, The Economic Society of Australia, vol. 83(s1), pages S57-S72, 09.
  15. Atakelty Hailu & Sophie Thoyer, 2006. "Multi-unit auction format design," Journal of Economic Interaction and Coordination, Springer, vol. 1(2), pages 129-146, November.
  16. John Rolfe & Romy Greiner & Jill Windle & Atakelty Hailu, 2011. "Testing for allocation efficiencies in water quality tenders across catchments, industries and pollutants: a north Queensland case study," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(4), pages 518-536, October.
  17. Viaggi, D. & Raggi, M. & Bartolini, F. & Gallerani, V., 2010. "Designing contracts for irrigation water under asymmetric information: Are simple pricing mechanisms enough?," Agricultural Water Management, Elsevier, vol. 97(9), pages 1326-1332, September.
  18. Rolfe, John & Windle, Jill, 2011. "Using auction mechanisms to reveal costs for water quality improvements in Great Barrier Reef catchments in Australia," Agricultural Water Management, Elsevier, vol. 98(4), pages 493-501, February.
  19. Glyn Wittwer, 2011. "Confusing Policy and Catastrophe: Buybacks and Drought in the Murray–Darling Basin," Economic Papers, The Economic Society of Australia, vol. 30(3), pages 289-295, 09.
  20. Qureshi, M. Ejaz & Shi, Tian & Qureshi, Sumaira E. & Proctor, Wendy, 2009. "Removing barriers to facilitate efficient water markets in the Murray-Darling Basin of Australia," Agricultural Water Management, Elsevier, vol. 96(11), pages 1641-1651, November.
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