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Futures Contracts in Water Leasing: An Experimental Analysis Using Basin Characteristics of the Rio Grande, NM

Author

Listed:
  • Craig D. Broadbent

    (Brigham Young University-Idaho)

  • David S. Brookshire

    (University of New Mexico)

  • Don Coursey

    (University of Chicago)

  • Vince Tidwell

    (Earth Systems Department)

Abstract

Providing for increased water demands during periods of persistent drought and climatic variability may require water managers, users and planners to think differently about how water resources are allocated. A water marketing institution that allows water rights holders to reallocate water on a temporary basis could overcome these challenges with minimal conflict. In this paper, a water marketing institution that allows for the temporary reallocation of water rights in a spot and futures market is investigated. The results provide insight into three key questions: (1) how does trading impact the physical system, (2) does the value of water differ by trading agents, (3) how is economic welfare redistributed as a result of trading? Results of experimental treatments display minor impacts to the physical system, that prices differ across the different type of trading agents and the addition of a futures market has the ability to decrease market prices while increasing economic welfare as a futures market allows users to hedge against future water uncertainty.

Suggested Citation

  • Craig D. Broadbent & David S. Brookshire & Don Coursey & Vince Tidwell, 2017. "Futures Contracts in Water Leasing: An Experimental Analysis Using Basin Characteristics of the Rio Grande, NM," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 569-594, November.
    • Handle: RePEc:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0032-4
    DOI: 10.1007/s10640-016-0032-4
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    References listed on IDEAS

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