Water Markets, Water Rights and Economic Efficiency

Andrew L. Zaeske () and Chandra Kiran B. Krishnamurthy ()
Additional contact information
Andrew L. Zaeske: Independent Consultant
Chandra Kiran B. Krishnamurthy: CERE, Center for Environmental and Resource Economics, and Department of Forest Economics, Swedish University of Agricultural Sciences, Umeå, http://www.cere.se

No 2017:2, CERE Working Papers from CERE - the Center for Environmental and Resource Economics

Abstract: Markets for water are increasingly being viewed as important mechanisms for significantly enhancing the allocative efficiency of water in the presence of impediments to altering water rights allocations, particularly under conditions of scarcity. This article seeks to understand the conditions under which allocative efficiency is attained by markets for water in the presence of pre-existing legal entitlements to water. Using a production model with a single input, water from a common source, two insights are provided. The first relates to an equivalence result: legal allocation of water rights which leave no producer with a negative marginal product can be replicated by a planner via planning weights (meaning considerations other than productivity can be accommodated) or by a market with an endogenous single-water-price. In view of the ubiquity of producers with negative marginal products in reality, market outcomes need not be efficient. Secondly, sufficient conditions for a market to lead to allocative efficiency, which includes homogeneity among producers, are so stringent as to not be relevant for most settings. Our results suggest that markets for water face many limitations in attaining allocative efficiency.

Keywords: markets; water rights; allocative efficiency; social welfare; copula (search for similar items in EconPapers)
JEL-codes: D61 Q10 Q25 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2017-03-22, Revised 2023-10-09
New Economics Papers: this item is included in nep-agr
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2957456 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:slucer:2017_002

Access Statistics for this paper

More papers in CERE Working Papers from CERE - the Center for Environmental and Resource Economics
Bibliographic data for series maintained by Mona Bonta Bergman ().