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Salinity in Water Markets : An ExperimentalInvestigation of the Sunraysia Salinity Levy, Victoria

Author

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  • C. Duke
  • L. Gangadharan

Abstract

Irrigation can have a significant negative impact on the environment. Irrigation impacts contribute a significant portion to the estimated forty six million dollar cost per annum of salinity in the Murray River, Australia. Policies available to regulators 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 ‘large’ tax relative to other geographic zones. Our results show that the salinity tax reduces the cost of salinity interception by the government by twenty five percent 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

  • C. Duke & L. Gangadharan, 2005. "Salinity in Water Markets : An ExperimentalInvestigation of the Sunraysia Salinity Levy, Victoria," Department of Economics - Working Papers Series 950, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:950
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-05/950.pdf
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    References listed on IDEAS

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    Cited by:

    1. Lee, Lisa Y. & Ancev, Tihomir & Vervoort, Willem, 2012. "Evaluation of environmental policies targeting irrigated agriculture: The case of the Mooki catchment, Australia," Agricultural Water Management, Elsevier, vol. 109(C), pages 107-116.
    2. Duke, Charlotte, 2006. "Experimental Economics and Water Policy," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25369, International Association of Agricultural Economists.

    More about this item

    Keywords

    Externality Taxes; Experiments; Double Auction; Environmental Policy; Salinity.;

    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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