IDEAS home Printed from https://ideas.repec.org/p/ags/aare99/123765.html
   My bibliography  Save this paper

The value of inter seasonal arbitrage in water markets

Author

Listed:
  • Bell, Rosalyn
  • Beare, Stephen

Abstract

There is pressure in Australia for water management reform to ensure an efficient allocation of resources between productive uses and to provide adequate conservation of the environment. The establishment of water markets and trade has been seen as the primary mechanism for improving the efficiency of water use in the Southern Murray Darling Basin. However, with the existing trading arrangements, irrigators can only reallocate water within a season. Individuals do not hold property rights that allow them to manage the variability in water demand and supply between seasons. The objective of the study presented in this paper is to establish an order of magnitude for the benefits of property rights that allow for inter-seasonal arbitrage in water markets. A stochastic optimal control model was developed for the Murrumbidgee catchment, which integrates agronomic, economic and hydrologic aspects of farm irrigation. The modelling framework allows consideration of the impact of alternative strategies for the pricing of water released from storages, when there exists uncertainty in both water availability and demand. The current allocation system adopted in the Murrumbidgee valley has the traded price of water largely determined at the start of the irrigation season according to allocation levels. The impact of this strategy on water use and farm incomes is compared with that which would arise from a system of property rights that allow trade of water held in storage within and between seasons. The results indicate that under a system of storage access rights which allows trade between seasons, irrigators could increase returns compared to the current allocation rule by reducing the average amount of water held in storage between seasons. The increase in returns was estimated to be in the order of $700 million, discounted over 30 years. However, the associated increase in water use would result in lower but more volatile water prices and greater variability in water use between seasons. Realising these benefits might require investments in delivery and farm infrastructure. There would also be implications for the overall management of water flows for the environment.

Suggested Citation

  • Bell, Rosalyn & Beare, Stephen, 1999. "The value of inter seasonal arbitrage in water markets," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 123765, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare99:123765
    DOI: 10.22004/ag.econ.123765
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/123765/files/Bell.PDF
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.123765?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Beare, Stephen & Bell, Rosalyn & Harrison, Scott, 1999. "Stochastic optimal control in bio-economic simulations A comparison of solution techniques," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 123763, Australian Agricultural and Resource Economics Society.
    2. Stephen C. Beare & Rosalyn Bell & Brian S. Fisher, 1998. "Determining the Value of Water: The Role of Risk, Infrastructure Constraints, and Ownership," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 916-940.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jackson, T.M. & Hanjra, Munir A. & Khan, S. & Hafeez, M.M., 2011. "Building a climate resilient farm: A risk based approach for understanding water, energy and emissions in irrigated agriculture," Agricultural Systems, Elsevier, vol. 104(9), pages 729-745.
    2. Zuo, Alec & Nauges, Celine & Wheeler, Sarah, 2012. "Water trading as a risk-management tool for farmers: new empirical evidence from the Australian water market," Risk and Sustainable Management Group Working Papers 149885, University of Queensland, School of Economics.
    3. Beare, Stephen & Hinde, Ray, 2001. "Cost effective management of animal and plant disease incursions," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 171988, Australian Agricultural and Resource Economics Society.
    4. Guerrero-Baena, M. Dolores & Villanueva, Anastasio J. & Gómez-Limón, José A. & Glenk, Klaus, 2019. "Willingness to pay for improved irrigation water supply reliability: An approach based on probability density functions," Agricultural Water Management, Elsevier, vol. 217(C), pages 11-22.
    5. Lavee, Doron, 2010. "The effect of water supply uncertainty on farmers' choice of crop portfolio," Agricultural Water Management, Elsevier, vol. 97(11), pages 1847-1854, November.
    6. Chapman, Lisa & Beare, Stephen, 2001. "Optimal fisheries management innstruments under biological uncertainty," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 171991, Australian Agricultural and Resource Economics Society.
    7. Ereney Hadjigeorgalis, 2004. "Comerciando con Incertidumbre: Los Mercados de Agua en la Agricultura Chilena," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(122), pages 3-34.
    8. Chi Truong, 2012. "An Analysis of Storage Capacity Reallocation Impacts on the Irrigation Sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(1), pages 141-159, January.
    9. Iglesias, Eva & Garrido, Alberto & Gomez-Ramos, Almudena, 2003. "Evaluation of drought management in irrigated areas," Agricultural Economics, Blackwell, vol. 29(2), pages 211-229, October.
    10. Kazmierczak, Richard F., Jr., 2001. "Economic Management Of Freshwater Resources I: The Economic Characteristics Of Water," Staff Papers 31688, Louisiana State University, Department of Agricultural Economics and Agribusiness.
    11. Esteban Castellano & Pablo Anguita & José Elorrieta & Marcelino Pellitero & Concepción Rey, 2008. "Estimating a socially optimal water price for irrigation versus an environmentally optimal water price through the use of Geographical Information Systems and Social Accounting Matrices," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 331-356, March.
    12. V., Ernesto Guerra & H., Eugenio Bobenrieth & H., Juan Bobenrieth & Wright, Brian D., 2023. "Endogenous thresholds in energy prices: Modeling and empirical estimation," Energy Economics, Elsevier, vol. 121(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aare99:123765. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.