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Futures Contracts in Water Leasing: An Experimental Analysis Using Basin Characteristics of the Rio Grande, NM

Craig D. Broadbent (), David S. Brookshire, Don Coursey and Vince Tidwell
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Craig D. Broadbent: Brigham Young University-Idaho
David S. Brookshire: University of New Mexico
Don Coursey: University of Chicago
Vince Tidwell: Earth Systems Department

Environmental & Resource Economics, 2017, vol. 68, issue 3, 569-594

Abstract: Abstract Providing for increased water demands during periods of persistent drought and climatic variability may require water managers, users and planners to think differently about how water resources are allocated. A water marketing institution that allows water rights holders to reallocate water on a temporary basis could overcome these challenges with minimal conflict. In this paper, a water marketing institution that allows for the temporary reallocation of water rights in a spot and futures market is investigated. The results provide insight into three key questions: (1) how does trading impact the physical system, (2) does the value of water differ by trading agents, (3) how is economic welfare redistributed as a result of trading? Results of experimental treatments display minor impacts to the physical system, that prices differ across the different type of trading agents and the addition of a futures market has the ability to decrease market prices while increasing economic welfare as a futures market allows users to hedge against future water uncertainty.

Keywords: Water leasing; Futures contracts; Experimental economics (search for similar items in EconPapers)
Date: 2017
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