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Measuring the price of Australian water

Author

Listed:
  • Steve Easton

    (The University of Newcastle, Callaghan, NSW, Australia)

  • Sean Pinder

    (The University of Melbourne, Parkville, VIC, Australia)

Abstract

The Murray-Darling Basin is Australia’s largest river system spanning over a million square kilometres and supporting annual agricultural production in excess of $A24 billion. The market for trading in water entitlements linked to this resource seeks to ensure that water flows to its highest value use. The quality of the data produced for these markets is of paramount importance to all participants, whether it be irrigators assessing whether the price offered for their entitlement is fair or a water authority attempting to determine the impact of their intervention through buyback activity. In this paper, we highlight the problem of using median prices when reporting aggregate price levels. We demonstrate that a median-based price index reflects changes in the composition of entitlement sales each month in addition to any general change in aggregate prices. We employ the repeat-sales technique, historically used to construct house price indices, in the novel setting of water entitlement trading to overcome this distortion. JEL Classification: Q25 , G10

Suggested Citation

  • Steve Easton & Sean Pinder, 2022. "Measuring the price of Australian water," Australian Journal of Management, Australian School of Business, vol. 47(1), pages 24-33, February.
    • Handle: RePEc:sae:ausman:v:47:y:2022:i:1:p:24-33
    DOI: 10.1177/0312896221992454
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    References listed on IDEAS

    as
    1. Grafton, R. Quentin & Horne, James, 2014. "Water markets in the Murray-Darling Basin," Agricultural Water Management, Elsevier, vol. 145(C), pages 61-71.
    2. Monica - Ioana Toader & Mihaela - Gabriela Todrican (Rosca) & Adriana – Ioana Filip (Croitoru), 2020. "The Necessity and Importance of Insurance Controlling," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 1087-1092, December.
    3. R. Quentin Grafton & Sarah Ann Wheeler, 2018. "Economics of Water Recovery in the Murray-Darling Basin, Australia," Annual Review of Resource Economics, Annual Reviews, vol. 10(1), pages 487-510, October.
    4. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    5. Robert J. Shiller, 2008. "Derivatives Markets for Home Prices," Cowles Foundation Discussion Papers 1648, Cowles Foundation for Research in Economics, Yale University.
    6. R. Quentin Grafton & James Horne & Sarah Ann Wheeler, 2016. "On the Marketisation of Water: Evidence from the Murray-Darling Basin, Australia," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(3), pages 913-926, February.
    7. James Hansen, 2009. "Australian House Prices: A Comparison of Hedonic and Repeat‐Sales Measures," The Economic Record, The Economic Society of Australia, vol. 85(269), pages 132-145, June.
    8. Nalini Prasad & Anthony Richards, 2006. "Measuring Housing Price Growth – Using Stratification to Improve Median-based Measures," RBA Research Discussion Papers rdp2006-04, Reserve Bank of Australia.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Composition effect; repeat sales index; water rights;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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