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Mechanisms For Addressing Third Party Impacts Resulting From Voluntary Water Transfers

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  • Murphy, James J.
  • Dinar, Ariel
  • Howitt, Richard E.
  • Mastrangelo, Erin
  • Rassenti, Stephen J.
  • Smith, Vernon L.

Abstract

This paper uses laboratory experiments to test alternative water market institutions designed to protect third party interests. The institutions tested include taxing mechanisms that raise revenue to compensate affected third parties and a market in which third parties actively participate. The results indicate that there are some important trade-offs in selecting a policy option. Active third party participation in the market is likely to result in free riding that may erode some or all of the efficiency gains, and may introduce volatility into the market. Taxing transfers and compensating third parties offers a promising balance of efficiency, equity and market stability.

Suggested Citation

  • Murphy, James J. & Dinar, Ariel & Howitt, Richard E. & Mastrangelo, Erin & Rassenti, Stephen J. & Smith, Vernon L., 2003. "Mechanisms For Addressing Third Party Impacts Resulting From Voluntary Water Transfers," Working Paper Series 14511, University of Massachusetts, Amherst, Department of Resource Economics.
  • Handle: RePEc:ags:umamwp:14511
    DOI: 10.22004/ag.econ.14511
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    References listed on IDEAS

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    1. Murphy, James J. & Dinar, Ariel & Howitt, Richard E. & Rassenti, Stephen J. & Smith, Vernon L. & Weinberg, Marca, 2004. "Incorporating Instream Flow Values Into A Water Market," Working Paper Series 14525, University of Massachusetts, Amherst, Department of Resource Economics.
    2. McCabe, Kevin A & Rassenti, Stephen J & Smith, Vernon L, 1990. "Auction Institutional Design: Theory and Behavior of Simultaneous Multiple-Unit Generalizations of the Dutch and English Auctions," American Economic Review, American Economic Association, vol. 80(5), pages 1276-1283, December.
    3. James Murphy & Ariel Dinar & Richard Howitt & Steven Rassenti & Vernon Smith, 2000. "The Design of ``Smart'' Water Market Institutions Using Laboratory Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(4), pages 375-394, December.
    4. Ashenfelter, Orley, et al, 1992. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Econometrica, Econometric Society, vol. 60(6), pages 1407-1433, November.
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    6. Bloom, David E, 1986. "Empirical Models of Arbitrator Behavior under Conventional Arbitration," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 578-585, November.
    7. McCabe, Kevin A. & Rassenti, Stephen J. & Smith, Vernon L., 1989. "Designing `smart' computer-assisted markets : An experimental auction for gas networks," European Journal of Political Economy, Elsevier, vol. 5(2-3), pages 259-283.
    8. Marie Leigh Livingston & Thomas A. Miller, 1986. "A Framework for Analyzing the Impact of Western Instream Water Rights on Choice Domains: Transferability, Externalities, and Consumptive Use," Land Economics, University of Wisconsin Press, vol. 62(3), pages 269-277.
    9. McCabe, Kevin A. & Rassenti, Stephen J. & Smith, Vernon L., 1990. "Auction design for composite goods : The natural gas industry," Journal of Economic Behavior & Organization, Elsevier, vol. 14(1), pages 127-149, September.
    10. Henry S. Farber & Max H. Bazerman, 1987. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."," NBER Working Papers 2139, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kristiana Hansen & Jonathan Kaplan & Stephan Kroll, 2014. "Valuing Options in Water Markets: A Laboratory Investigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 59-80, January.
    2. Raffensperger, John F., 2011. "Matching users' rights to available groundwater," Ecological Economics, Elsevier, vol. 70(6), pages 1041-1050, April.
    3. Anderson, Christopher M. & Sutinen, Jon G., 2006. "The effect of initial lease periods on price discovery in laboratory tradable fishing allowance markets," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 164-180, October.
    4. Siwa Msangi & Richard E. Howitt, 2007. "Income distributional effects of using market‐based instruments for managing common property resources," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 249-259, December.
    5. Hanak, Ellen, 2003. "Stopping The Drain: Third-Party Resistance To Water Marketing In California," 2003 Annual meeting, July 27-30, Montreal, Canada 22099, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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