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Water Markets in the West: Prices, Trading, and Contractual Forms

  • Jedidiah Brewer
  • Robert Glennon
  • Alan Ker
  • Gary D. Libecap

Rising urban and environmental demand for water has created growing pressure to re-allocate water from traditional agricultural uses. The evolution of water markets has been more complicated than those for other resources. In this paper, we first explain these differences by examining water rights and regulatory issues. Second, we place our research in the context of the economics literature on water marketing. Third, we present new, comprehensive data on prices and the extent, nature, and timing of water transfers across 12 western states from 1987-2005. We find that prices are higher for agriculture-to-urban trades versus within-agriculture trades, in part, reflecting the differences in marginal values between the two uses. Prices for urban use are also growing relative to agricultural use. Markets are responding in that the number of agriculture-to-urban transactions is rising, whereas the number of agriculture-to-agriculture transfers is not. Further, there is a shift from using short-term leases to using multi-year leases of water and permanent sales of water rights. This pattern underscores the need to consider the amounts of water obligated over time, rather than examining only annual flows in assessing the quantities of water traded as is the common practice in the literature. Considering water obligated over time, termed committed water, we find significantly more is transferred and the direction of trading is different than if the focus is on annual flows. Finally, the data reveal considerable variation in water trading across the states.

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File URL: http://www.nber.org/papers/w13002.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13002.

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Date of creation: Mar 2007
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Publication status: published as Jedidiah Brewer & Robert Glennon & Alan Ker & Gary Libecap, 2008. "2006 Presidential Address Water Markets In The West: Prices, Trading, And Contractual Forms," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 91-112, 04.
Handle: RePEc:nbr:nberwo:13002
Note: PE IO EEE
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  1. Bill Provencher, 1993. "A Private Property Rights Regime to Replenish a Groundwater Aquifer," Land Economics, University of Wisconsin Press, vol. 69(4), pages 325-340.
  2. Marie Leigh Livingston & Thomas A. Miller, 1986. "A Framework for Analyzing the Impact of Western Instream Water Rights on Choice Domains: Transferability, Externalities, and Consumptive Use," Land Economics, University of Wisconsin Press, vol. 62(3), pages 269-277.
  3. Provencher Bill & Burt Oscar, 1993. "The Externalities Associated with the Common Property Exploitation of Groundwater," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 139-158, March.
  4. Anderson, Terry L & Johnson, Ronald N, 1986. "The Problem of Instream Flows," Economic Inquiry, Western Economic Association International, vol. 24(4), pages 535-54, October.
  5. Hansen, Kristiana & Howitt, Richard E. & Williams, Jeffrey C., 2005. "An Econometric Test of the Endogeneity of Institutions: Water Markets in the Western United States," 2005 Annual meeting, July 24-27, Providence, RI 19548, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Hanemann, W. Michael, 2005. "The economic conception of water," CUDARE Working Paper Series 1005, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  7. Howitt, Richard E. & Hansen, Kristiana, 2005. "The Evolving Western Water Markets," Choices, Agricultural and Applied Economics Association, vol. 20(1).
  8. Johnson, Ronald N & Gisser, Micha, 1981. "The Definition of a Surface Water Right and Transferability," Journal of Law and Economics, University of Chicago Press, vol. 24(2), pages 273-88, October.
  9. Hanemann, W. Michael, 2005. "The economic conception of water," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt08n4410n, Department of Agricultural & Resource Economics, UC Berkeley.
  10. Young, Robert A. & Haveman, Robert H., 1985. "Economics of water resources: a survey," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 2, chapter 11, pages 465-529 Elsevier.
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