Title: Do security-differentiated water rights improve the performance of water markets?
Citation: AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS vol. 94 no. 5 p. 1113-1135
Publication Year: 2012
JRC N°: JRC70680
ISSN: 0002-9092
URI: http://ajae.oxfordjournals.org/content/early/2012/08/24/ajae.aas060.full.pdf?keytype=ref&ijkey=pvwNIHMki2bMF9Q
DOI: 10.1093/ajae/aas060
Type: Articles in periodicals and books
Abstract: Most existing water markets combine water rights trading and water allocation trading. Offering security-differentiated water rights can make the market more efficient and allow water users to manage the risks of supply uncertainty better. We conduct a laboratory experiment which compares two designs for water rights; one with a single security level and another with two security levels. We find that a two security level system increases overall profits when transactions costs are lower on the water rights market than on the water allocation market. It also improves risk allocation by allowing subjects to trade-off profits variability against expected profits according to their risk type and this result is robust to the existence of transactions costs on either market.
JRC Directorate:Growth and Innovation

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