Salinity in Water Markets: An ExperimentalInvestigation of the Sunraysia Salinity Levy, Victoria

C. Duke and Lata Gangadharan (lata.gangadharan@monash.edu)

No 950, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Irrigation can have a significant negative impact on the environment. Irrigation impacts contribute a significant portion to the estimated forty six million dollar cost per annum of salinity in the Murray River, Australia. Policies available to regulators include externality taxes and levies. In 2002 the Victorian Government introduced a system of salinity levies in the irrigation regions of Sunraysia, northern Victoria. These levies differ from typical taxes because they also introduce trade barriers between certain locations. These trade barriers may increase the cost of reducing salinity. We use experiments to compare the salinity levy with trade barriers to an alternative salinity tax which removes the trade barriers and replaces them with a ‘large’ tax relative to other geographic zones. Our results show that the salinity tax reduces the cost of salinity interception by the government by twenty five percent as compared to the salinity levy. We observe water prices do not increase when regulation is introduced, this may be because the introduction of taxes and levies encourages buyers to act more aggressively preventing sellers from extracting surplus on trades. Further, the introduction of regulation does not increase variability in average outcomes for these markets.

Keywords: Externality Taxes; Experiments; Double Auction; Environmental Policy; Salinity. (search for similar items in EconPapers)
JEL-codes: C90 Q25 Q28 (search for similar items in EconPapers)
Pages: 51pages
Date: 2005
New Economics Papers: this item is included in nep-env
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Citations: View citations in EconPapers (2)

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