Can a Water Bank Improve Groundwater Rights Market Efficiency?—A Study Based on Monte Carlo Simulations

Yiying Chen, Taolu Luo, Guiliang Tian () and Qiuya Zhao
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Yiying Chen: Business School, Hohai University, Nanjing 211100, China
Taolu Luo: Ningxia Shuifa Group Co., Ltd., Yinchuan 750000, China
Guiliang Tian: Business School, Hohai University, Nanjing 211100, China
Qiuya Zhao: Business School, Hohai University, Nanjing 211100, China

Sustainability, 2023, vol. 16, issue 1, 1-19

Abstract: Groundwater possesses a natural advantage as a reservoir, making it well-suited for storage. Introducing a water bank to the groundwater market not only reduces storage costs but also revitalizes the groundwater rights market, achieving synergy between the economic and ecological values of regional water resources. This study combines the core functions of a water bank to establish a theoretical framework for mechanisms concerning value appreciation and risk prevention. Approaching the topic from the perspectives of transaction costs and market price mechanisms, we employ the Monte Carlo algorithm for simulation to study the mechanistic impact of a water bank on the efficiency of the water market. It reveals that a water bank, compared to direct transactions between parties, can effectively reduce the number of transactions in the fragmented water rights market. Additionally, it effectively utilizes market transaction information to provide accurate pricing. Furthermore, we alter model parameters to explore the relationship between the average number of transactions in the market and supply–demand equilibrium. We also investigate how changes in the acceptable price range in the supply–demand market affect the pricing strategies of a water bank and open market pricing. These findings substantiate the necessity of developing a water bank in practice.

Keywords: groundwater rights; market efficiency; Monte Carlo simulation; water bank (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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