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Salinity in water markets: An experimental investigation of the Sunraysia Salinity Levy in Australia

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  • Duke, Charlotte
  • Gangadharan, Lata

Abstract

Irrigation can have a significant negative impact on the environment. Policies available to regulators to reduce the impact of irrigation include externality taxes and levies. In 2002 the Victorian Government introduced a system of salinity levies in the irrigation regions of Sunraysia, northern Victoria. These levies differ from typical taxes because they also introduce trade barriers between certain locations. These trade barriers may increase the cost of reducing salinity. We use experiments to compare the salinity levy with trade barriers to an alternative salinity tax which removes the trade barriers and replaces them with a tax that reflects the relative difference in cost of trading water between impact zones. Our experimental testbed results show that the salinity tax reduces the cost of salinity interception by the government by 75% as compared to the salinity levy. We observe water prices do not increase when regulation is introduced, this may be because the introduction of taxes and levies encourages buyers to act more aggressively preventing sellers from extracting surplus on trades. Further, the introduction of regulation does not increase variability in average outcomes for these markets.

Suggested Citation

  • Duke, Charlotte & Gangadharan, Lata, 2008. "Salinity in water markets: An experimental investigation of the Sunraysia Salinity Levy in Australia," Ecological Economics, Elsevier, vol. 68(1-2), pages 486-503, December.
  • Handle: RePEc:eee:ecolec:v:68:y:2008:i:1-2:p:486-503
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    Cited by:

    1. Nikos Nikiforakis, 2010. "Experimental Economics," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(3), pages 337-345.
    2. Noussair, C.N. & van Soest, D.P., 2014. "Economic Experiments and Environmental Policy : A Review," Discussion Paper 2014-001, Tilburg University, Center for Economic Research.
    3. Hans-Theo Normann & Roberto Ricciuti, 2009. "Laboratory Experiments For Economic Policy Making," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 407-432, July.

    More about this item

    Keywords

    Externality taxes Experiments Environmental policy Salinity Q25 Q28 C90;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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