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Market Design for Surface Water

In: New Directions in Market Design

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  • Billy A. Ferguson
  • Paul Milgrom

Abstract

Many proposed surface water transfers undergo a series of regulatory reviews designed to mitigate hydrological and economic externalities. While these reviews help limit externalities, they impose substantial transaction costs that also limit trade. To promote a well-functioning market for surface water in California, we describe how a new kind of water right and related regulatory practices can balance the trade-off between externalities and transaction costs, and how a Water Incentive Auction can incentivize a sufficient number of current rights holders to swap their old rights for the new ones. The Water Incentive Auction adapts lessons learned from the US government’s successful Broadcast Incentive Auction.
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Suggested Citation

  • Billy A. Ferguson & Paul Milgrom, 2024. "Market Design for Surface Water," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14943
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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