Transaction costs associated with agricultural water trading in the Heihe River Basin, Northwest China

Xiaohong Deng, Zhongmin Xu, Xiaoyu Song and Jian Zhou

Agricultural Water Management, 2017, vol. 186, issue C, 29-39

Abstract: Trading in water via a market has become an effective way to deal with water resource scarcity. Transactions costs (TCs) are known to prevent markets from operating efficiently or from forming altogether. Therefore, evaluation of the level of transactions costs is an important precursor to establish an efficient water market. We analyze one water transaction scenario in the context of government regulation in Zhangye City in the middle reach of the Heihe River Basin (HRB) in China: water rights-trading between irrigation areas in agricultural use, which is one of the most urgent scenarios and maximizes the likelihood of a transaction in future. The results show that without calculating the transfer costs and the third-party effect costs, TCs per unit water range between 0.004 and 0.247yuan/m3 based on the set of transaction scales and cost limits in the middle reach of the HRB. Under the most realistic transaction case i.e., only one purchaser in the Luotuocheng irrigation district in Gaotai County and several sellers located in Ganzhou County, the lowest TCs per water are associated with trading between the Daman and Luotuocheng irrigation districts at a maximum trading scale of the water amount and with minimum costs. The highest TCs result from obtaining water from the Xidong intake in the Xijun irrigation district. In addition, given the highest permitted trading price of the local government-set standards (three times the agricultural water price, approximately 0.3yuan/m3), the transaction costs would range from 1% to 93% of the water trade price, and acceptable lower transaction costs can be obtained through appropriate operations and trading scales.

Keywords: Transaction costs; Water rights; Transaction size; Heihe River Basin (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378377417300744
Full text for ScienceDirect subscribers only

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:eee:agiwat:v:186:y:2017:i:c:p:29-39

DOI: 10.1016/j.agwat.2017.02.021

Access Statistics for this article

Agricultural Water Management is currently edited by B.E. Clothier, W. Dierickx, J. Oster and D. Wichelns

More articles in Agricultural Water Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().