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Efficiency gains from water markets: Empirical analysis of Watermove in Australia

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  • Brooks, Robert
  • Harris, Edwyna

Abstract

We analyse supply, demand, and welfare measures in markets where the temporary trading of water rights is reasonably active and liquid on a weekly basis. We identify four important characteristics of water trading within the Watermove program: (1) demand is highly responsive to price changes, supporting evidence that farmers' participation is driven by the advantages water markets provide in reducing seasonal risk; (2) some efficiency enhancing trades are prevented from taking place due to physical limitations of the delivery system, thereby reducing the ability of the market to move toward equilibrium. In addition, these limitations also created price premiums in some zones; (3) variations in the types of products traded are explained by differences in the administrative charges for trading and current drought conditions; and (4) relatively large gains have been made thus far, suggesting that water markets will expand and generate additional increases in consumer and producer surplus in the future.

Suggested Citation

  • Brooks, Robert & Harris, Edwyna, 2008. "Efficiency gains from water markets: Empirical analysis of Watermove in Australia," Agricultural Water Management, Elsevier, vol. 95(4), pages 391-399, April.
    • Handle: RePEc:eee:agiwat:v:95:y:2008:i:4:p:391-399
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    References listed on IDEAS

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    1. Productivity Commission, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Research Reports, Productivity Commission, Government of Australia, number 21, January.
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    3. 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.
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    5. 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.
    6. Anna Heaney & Gavan Dwyer & Stephen Beare & Deborah Peterson & Lili Pechey, 2006. "Third-party effects of water trading and potential policy responses ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 277-293, September.
    7. Crase, Lin & O'Reilly, Leo & Dollery, Brian, 2000. "Water markets as a vehicle for water reform: the case of New South Wales," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 44(2), pages 1-23.
    8. Heaney, Anna & Dwyer, Gavan & Beare, Stephen & Peterson, Deborah C. & Pechey, Lili, 2006. "Third-party effects of water trading and potential policy responses," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-17, September.
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