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Water rights for variable supplies

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  • Freebairn, John W.
  • Quiggin, John C.

Abstract

The relative merits of different systems of property rights to allocate water among different extractive uses are evaluated for the case where variability of supply is important. Three systems of property rights are considered. In the first, variable supply is dealt with through the use of water entitlements defined as shares of the total quantity available. In the second, there are two types of water entitlements, one for water with a high security of supply and the other a lower security right for the residual supply. The third is a system of entitlements specified as state-contingent claims. With zero transaction costs, all systems are efficient. In the realistic situation where transaction costs matter, the system based on state-contingent claims is globally optimal, and the system with high-security and lower security entitlements is preferable to the system with share entitlements.

Suggested Citation

  • Freebairn, John W. & Quiggin, John C., 2006. "Water rights for variable supplies," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-18.
  • Handle: RePEc:ags:aareaj:116968
    DOI: 10.22004/ag.econ.116968
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    Cited by:

    1. David Adamson & Thilak Mallawaarachchi & John Quiggin, 2009. "Declining inflows and more frequent droughts in the Murray-Darling Basin: climate change, impacts and adaptation ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 345-366, July.
    2. Guerrero-Baena, M. Dolores & Villanueva, Anastasio J. & Gómez-Limón, José A. & Glenk, Klaus, 2019. "Willingness to pay for improved irrigation water supply reliability: An approach based on probability density functions," Agricultural Water Management, Elsevier, vol. 217(C), pages 11-22.
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    4. Benjamin Ouvrard & Stefan Ambec & Arnaud Reynaud & Stéphane Cezera & Murudaiah Shivamurthy, 2022. "Sharing rules for a common-pool resource in a lab experiment," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 59(3), pages 605-635, October.
    5. Coram, Alex & Noakes, Lyle, 2009. "The optimal extraction of water along an arbitrarily configured river system," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), pages 1-14.
    6. Carlos Gutiérrez-Martín & José A. Gómez-Limón & Nazaret M. Montilla-López, 2022. "Priority Water Rights for Irrigation at the River Basin Level. Do They Improve Economic Efficiency During Drought Periods?," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 36(10), pages 3737-3758, August.
    7. Xie, Yang & Zilberman, David, 2015. "Water Storage Capacities versus Water Use Efficiency: Substitutes or Complements?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205439, Agricultural and Applied Economics Association.
    8. Mallawaarachchi, Thilak & Auricht, Christopher & Loch, Adam & Adamson, David & Quiggin, John, 2020. "Water allocation in Australia’s Murray–Darling Basin: Managing change under heightened uncertainty," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 345-369.
    9. David Adamson & Thilak Mallawaarachchi & John Quiggin, 2006. "State-contingent modelling of the Murray Darling Basin: implications for the design of property rights," Murray-Darling Program Working Papers WP2M06, Risk and Sustainable Management Group, University of Queensland.
    10. Marianne LEFEBVRE & Lata GANGADHARAN & Sophie THOYER, 2011. "Do Security-differentiated Water Rights Improve Efficiency?," Working Papers 11-14, LAMETA, Universtiy of Montpellier, revised Jun 2012.
    11. Adamson, David & Mallawaarachchi, Thilak & Quiggin, John C., 2007. "Water use and salinity in the Murray–Darling Basin: A state-contingent model," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 1-19.
    12. Aldaya, Maite M. & Gutiérrez-Martín, Carlos & Espinosa-Tasón, Jaime & Ederra, Idoia & Sánchez, Mercedes, 2023. "The impact of the territorial gradient and the irrigation water price on agricultural production along the first phase of the Navarra Canal in Spain," Agricultural Water Management, Elsevier, vol. 281(C).
    13. Gómez-Limón, José A. & Gutiérrez-Martín, Carlos & Montilla-López, Nazaret M., 2021. "Priority water rights. Are they useful for improving water-use efficiency at the irrigation district level?," Agricultural Water Management, Elsevier, vol. 257(C).
    14. Hassan, Wasim & Manzoor, Talha & Muhammad, Abubakr, 2023. "Improving equity in demand-driven irrigation systems through a rights-preserving water allocation mechanism," Agricultural Water Management, Elsevier, vol. 287(C).
    15. Brennan, Donna C., 2006. "Water policy reform in Australia: lessons from the Victorian seasonal water market," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-21, September.
    16. Jordi Honey-Rosés, 2009. "Reviewing the arguments for market based approaches to water distribution: a critical assessment for sustainable water management in Spain," Sustainable Development, John Wiley & Sons, Ltd., vol. 17(6), pages 357-364.
    17. Delorit, Justin D. & Parker, Dominic P. & Block, Paul J., 2019. "An agro-economic approach to framing perennial farm-scale water resources demand management for water rights markets," Agricultural Water Management, Elsevier, vol. 218(C), pages 68-81.
    18. Johannus Janmaat, 2011. "Water Markets, Licenses, and Conservation: Some Implications," Land Economics, University of Wisconsin Press, vol. 87(1), pages 145-159.
    19. Smith, Steven M., 2021. "The relative economic merits of alternative water right systems," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    20. John Freebairn, 2005. "Issues in the Design of Water Markets," Melbourne Institute Working Paper Series wp2005n18, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    21. Karina Schoengold & David L. Sunding, 2014. "The impact of water price uncertainty on the adoption of precision irrigation systems," Agricultural Economics, International Association of Agricultural Economists, vol. 45(6), pages 729-743, November.

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    Keywords

    Resource /Energy Economics and Policy;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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