Do Security-differentiated Water Rights improve the performance of water markets

Marianne Lefebvre (), Lata Gangadharan () and Sophie Thoyer
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Marianne Lefebvre: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier
Sophie Thoyer: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

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Abstract: Most existing water markets combine water rights trading and water allocation trading. Offering security‐differentiated water rights can make the market more efficient and allow water users to manage the risks of supply uncertainty better. We conduct a laboratory experiment which compares two designs for water rights; one with a single security level and another with two security levels. We find that a two security level system increases overall profits when transactions costs are lower on the water rights market than on the water allocation market. It also improves risk allocation by allowing subjects to trade‐off profits variability against expected profits according to their risk type and this result is robust to the existence of transactions costs on either market.

Keywords: experiment; irrigation; risk allocation; risk management; transactions costs; water markets (search for similar items in EconPapers)
Date: 2012-10
Note: View the original document on HAL open archive server: https://univ-angers.hal.science/hal-01487104v2
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Citations: View citations in EconPapers (14)

Published in American Journal of Agricultural Economics, 2012, 94 (5), pp.1113-1135. ⟨10.1093/ajae/aas060⟩

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Journal Article: Do Security-Differentiated Water Rights Improve the Performance of Water Markets? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01487104

DOI: 10.1093/ajae/aas060

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