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Third-party effects of water trading and potential policy responses

Author

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  • Heaney, Anna
  • Dwyer, Gavan
  • Beare, Stephen
  • Peterson, Deborah C.
  • Pechey, Lili

Abstract

The joint conference paper, 'Third-party effects of water trading and potential policy responses' by Anna Heaney (ABARE), Gavan Dwyer (PC), Stephen Beare (ABARE), Deborah Peterson (PC) and Lili Pechey (ABARE), was presented to the American Agricultural Economics Association conference, Providence, Rhode Island, 25 - 27 July 2005. A key feature of water policy reform in Australia has been the separation of water access entitlements from land titles and the establishment of markets for water. However, the separation of water entitlements from land entitlement is not a sufficient condition to ensure that water markets are complete. In the absence of fully defined property rights, water markets will be incomplete and trade has the potential to create third-party effects. However, property rights over natural resources are seldom completely specified, because of the existence of transactions costs. The benefits from eliminating third-party effects need to be sufficient to warrant intervention. The objectives in this paper are to identify key potential third-party effects of water trade under existing property rights structures in Australia, and to examine policy responses to address these effects. The discussion draws on the concepts of exclusiveness and rivalry as key characteristics that determine the applicability of property rights solutions to third-party effects of trade. It is likely that many of the third-party effects of trade discussed in this paper do not warrant policy intervention at the national or state level. In some instances, effects are likely to be relatively minor, although some may be significant at the local level. The costs of addressing some third-party effects may outweigh the benefits. Where there are significant gains from trade, the existence of these third-party effects should not been seen as a reason to impede trade. There are first-best policy instruments to address these effects at an appropriate scale. *ABARE (Australian Bureau of Agricultural and Resource Economics); PC (Productivity Commission) **The views expressed in this paper do not necessarily reflect those of the Productivity Commission.

Suggested Citation

  • Heaney, Anna & Dwyer, Gavan & Beare, Stephen & Peterson, Deborah C. & Pechey, Lili, 2005. "Third-party effects of water trading and potential policy responses," Conference Workshop Proceedings 31907, Productivity Commission.
    • Handle: RePEc:ags:prodwp:31907
    DOI: 10.22004/ag.econ.31907
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    References listed on IDEAS

    as
    1. Ellen Hanak, 2005. "Stopping the Drain: Third‐party Responses to California's Water Market," Contemporary Economic Policy, Western Economic Association International, vol. 23(1), pages 59-77, January.
    2. Peterson, Deborah C. & Dwyer, Gavan & Appels, David & Fry, Jane, 2004. "Modelling Water Trade in the Southern Murray-Darling Basin," Staff Working Papers 31925, Productivity Commission.
    3. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    4. Beare, Stephen & Newby, Jonathan C., 2005. "Incomplete Markets, Excluded Goods and Natural Resource Management," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137785, Australian Agricultural and Resource Economics Society.
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    Cited by:

    1. Qureshi, M. Ejaz & Shi, Tian & Qureshi, Sumaira E. & Proctor, Wendy, 2009. "Removing barriers to facilitate efficient water markets in the Murray-Darling Basin of Australia," Agricultural Water Management, Elsevier, vol. 96(11), pages 1641-1651, November.
    2. Donna Brennan, 2006. "Water policy reform in Australia: lessons from the Victorian seasonal water market ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 403-423, September.
    3. M. Ejaz Qureshi & Wendy Proctor & M. Kirby, 2000. "Economic Assessment of Water Trade Restrictions in the Murray Darling Basin," Regional and Urban Modeling 283600079, EcoMod.
    4. M Ejaz Qureshi & Tian Shi & Sumaira Qureshi & Wendy Proctor & Mac Kirby, 2009. "Removing Barriers to Facilitate Efficient Water Markets in the Murray Darling Basin – A Case Study from Australia," Socio-Economics and the Environment in Discussion (SEED) Working Paper Series 2009-02, CSIRO Sustainable Ecosystems.
    5. Brennan, Donna C., 2006. "Water policy reform in Australia: lessons from the Victorian seasonal water market," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-21, September.
    6. John Freebairn, 2005. "Issues in the Design of Water Markets," Melbourne Institute Working Paper Series wp2005n18, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    7. Hang Zheng & Zhongjing Wang & Siyi Hu & Yongping Wei, 2012. "A Comparative Study of the Performance of Public Water Rights Allocation in China," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(5), pages 1107-1123, March.
    8. Heather Roper & Chris Sayers & Andrew Smith, 2006. "Stranded Irrigation Assets," Staff Working Papers 0605, Productivity Commission, Government of Australia.

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