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Salinity in water markets: An experimental investigation of the Sunraysia Salinity Levy in Australia

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  • Duke, Charlotte
  • Gangadharan, Lata

Abstract

Irrigation can have a significant negative impact on the environment. Policies available to regulators to reduce the impact of irrigation include externality taxes and levies. In 2002 the Victorian Government introduced a system of salinity levies in the irrigation regions of Sunraysia, northern Victoria. These levies differ from typical taxes because they also introduce trade barriers between certain locations. These trade barriers may increase the cost of reducing salinity. We use experiments to compare the salinity levy with trade barriers to an alternative salinity tax which removes the trade barriers and replaces them with a tax that reflects the relative difference in cost of trading water between impact zones. Our experimental testbed results show that the salinity tax reduces the cost of salinity interception by the government by 75% as compared to the salinity levy. We observe water prices do not increase when regulation is introduced, this may be because the introduction of taxes and levies encourages buyers to act more aggressively preventing sellers from extracting surplus on trades. Further, the introduction of regulation does not increase variability in average outcomes for these markets.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 68 (2008)
Issue (Month): 1-2 (December)
Pages: 486-503

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Handle: RePEc:eee:ecolec:v:68:y:2008:i:1-2:p:486-503

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

Related research

Keywords: Externality taxes Experiments Environmental policy Salinity Q25 Q28 C90;

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Cited by:
  1. Hans-Theo Normann & Roberto Ricciuti, 2009. "Laboratory Experiments For Economic Policy Making," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 407-432, 07.

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