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A Comparative Assessment of Water Markets: Insights from the Murray-Darling Basin of Australia and the Western US

Author

Listed:
  • R. Quentin Grafton
  • Gary D. Libecap
  • Eric C. Edwards
  • R. J. (Bob) O'Brien
  • Clay Landry

Abstract

Water markets in Australia’s Murray-Darling Basin (MDB) and the US west are compared in terms of their ability to allocate scarce water resources. The study finds that the gains from trade in the MDB are worth hundreds of millions of dollars per year. Total market turnover in water rights exceeds $2 billion per year while the volume of trade exceeds over 20% of surface water extractions. In Arizona, California, Colorado, Nevada, and Texas, trades of committed water annually range between 5% and 15% of total state freshwater diversions with over $4.3 billion (2008 $) spent or committed by urban buyers between 1987 and 2008. The two-market comparison suggests that policy attention should be directed towards ways to promote water trade while simultaneously mitigating the legitimate thirdparty concerns about how and where water is used, especially conflicts between consumptive and in situ uses of water. The study finds that institutional innovation is feasible in both countries and that further understanding about the size, duration, and distribution of third-party effects from water trade, and how these effects might be regulated, can improve water markets to better manage water scarcity.

Suggested Citation

  • R. Quentin Grafton & Gary D. Libecap & Eric C. Edwards & R. J. (Bob) O'Brien & Clay Landry, 2011. "A Comparative Assessment of Water Markets: Insights from the Murray-Darling Basin of Australia and the Western US," ICER Working Papers 08-2011, ICER - International Centre for Economic Research.
    • Handle: RePEc:icr:wpicer:08-2011
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    File URL: http://www.bemservizi.unito.it/repec/icr/wp2011/ICERwp08-11.pdf
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    References listed on IDEAS

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    1. Commission, Productivity, 2010. "Market Mechanisms for Recovering Water in the Murray-Darling Basin," Research Reports, Productivity Commission, Government of Australia, number 40.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How to Quench the American West’s Thirst
      by Jeffrey Frankel in Project Syndicate on 2023-05-29 15:48:20

    Citations

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    Cited by:

    1. Eiji Satoh, 2011. "Nontransferable Water Rights and Technical Inefficiency in the Japanese Water Supply Industry," Global COE Hi-Stat Discussion Paper Series gd11-211, Institute of Economic Research, Hitotsubashi University.
    2. R. Quentin Grafton & James Horne & Sarah Ann Wheeler, 2016. "On the Marketisation of Water: Evidence from the Murray-Darling Basin, Australia," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(3), pages 913-926, February.
    3. Sarah Ann Wheeler & Alec Zuo & John Kandulu, 2021. "What Water are We Really Pumping? The Nature and Extent of Surface and Groundwater Substitutability in Australia and Implications for Water Management Policies," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1550-1570, December.
    4. Debaere, Peter & Li, Tianshu, 2017. "The Effects of Water Markets: Evidence from the Rio Grande," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259187, Agricultural and Applied Economics Association.
    5. Grafton, R. Quentin & Horne, James, 2014. "Water markets in the Murray-Darling Basin," Agricultural Water Management, Elsevier, vol. 145(C), pages 61-71.
    6. 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.
    7. Christopher Bruce & Kaveh Madani, "undated". "The Conditions for Successful Collaboration over Water Policy: Substance versus Process," Working Papers 2014-36, Department of Economics, University of Calgary, revised 03 Feb 2014.
    8. World Bank Group, 2016. "Valuing Water Resources in Turkey," World Bank Publications - Reports 25291, The World Bank Group.

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