Measuring the price of Australian water

Steve Easton and Sean Pinder
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Steve Easton: The University of Newcastle, Callaghan, NSW, Australia
Sean Pinder: The University of Melbourne, Parkville, VIC, Australia

Australian Journal of Management, 2022, vol. 47, issue 1, 24-33

Abstract: The Murray-Darling Basin is Australia’s largest river system spanning over a million square kilometres and supporting annual agricultural production in excess of $A24 billion. The market for trading in water entitlements linked to this resource seeks to ensure that water flows to its highest value use. The quality of the data produced for these markets is of paramount importance to all participants, whether it be irrigators assessing whether the price offered for their entitlement is fair or a water authority attempting to determine the impact of their intervention through buyback activity. In this paper, we highlight the problem of using median prices when reporting aggregate price levels. We demonstrate that a median-based price index reflects changes in the composition of entitlement sales each month in addition to any general change in aggregate prices. We employ the repeat-sales technique, historically used to construct house price indices, in the novel setting of water entitlement trading to overcome this distortion. JEL Classification: Q25 , G10

Keywords: Composition effect; repeat sales index; water rights (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:47:y:2022:i:1:p:24-33

DOI: 10.1177/0312896221992454

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