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An Econometric Test of the Endogeneity of Institutions: Water Markets in the Western United States

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  • Hansen, Kristiana
  • Howitt, Richard E.
  • Williams, Jeffrey C.

Abstract

In the western United States, the tremendous spatial and temporal variation in rainfall suggests that there are substantial gains from trade to be had through water markets. However, physical and institutional impediments to water transfers complicate the challenge of meeting the expanding population and environmental demands placed on water resources. Because of the variability in the relative importance of water supply uncertainty and trading impediments, markets are forming differently across the western United States. In many locations, trades take the form of short-term leases of water, where the underlying property rights remains unaffected. In other regions, transfers of permanent water rights predominate. Our econometric analysis of the determinants of 2247 transactions reported in the Water Strategist over 1993-2003 supports the conclusion that institutions have influenced not only whether water trades occur, but also whether trades are permanent water rights transfers or short-term leases.

Suggested Citation

  • Hansen, Kristiana & Howitt, Richard E. & Williams, Jeffrey C., 2005. "An Econometric Test of the Endogeneity of Institutions: Water Markets in the Western United States," 2005 Annual meeting, July 24-27, Providence, RI 19548, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19548
    DOI: 10.22004/ag.econ.19548
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    References listed on IDEAS

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    1. Williams, Jeffrey, 1987. "Futures Markets: A Consequences of Risk Aversion or Transactions Costs?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1000-1023, October.
    2. Hearne, Robert R. & William Easter, K., 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics, Blackwell, vol. 15(3), pages 187-199, January.
    3. Robert R. Hearne & K. William Easter, 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics, International Association of Agricultural Economists, vol. 15(3), pages 187-199, January.
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    Cited by:

    1. Jedidiah Brewer & Robert Glennon & Alan Ker & Gary Libecap, 2007. "Water Markets in the West: Prices, Trading, and Contractual Forms," ICER Working Papers 30-2007, ICER - International Centre for Economic Research.
    2. Gary D. Libecap, 2010. "Water Rights and Markets in the U.S. Semi Arid West: Efficiency and Equity Issues," ICER Working Papers 30-2010, ICER - International Centre for Economic Research.

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