IDEAS home Printed from https://ideas.repec.org/a/bla/ajarec/v52y2008i4p471-485.html
   My bibliography  Save this article

Missing markets for storage and the potential economic cost of expanding the spatial scope of water trade

Author

Listed:
  • Donna Brennan

Abstract

A great deal of attention has been given in recent years to the question of externalities associated with water entitlements and how third parties can be protected without restricting opportunities for water trade. Yet one market failure that has received no attention at all is the missing market for storage that arises from the specification of water entitlements, particularly in Victoria where historically all storage decisions were made at the centralised level and where any additional carryover was treated as common property. The economic significance of the missing market for storage is demonstrated using an empirical model that represents the spatial-temporal pattern of irrigation water demand in the Goulburn Valley and decisions regarding inter-year storage of water in Lake Eildon. It is shown that, because irrigators have no incentive to trade-off the benefit of current use (or sale) with the value of water storage, there is an erosion of reliability when opportunities for trade are broadened. The empirical results demonstrate that the loss in economic value associated with reduced reliability are as large as the gains from trade, so there is no net benefit from trade. Copyright 2008 The Author. Journal compilation 2008 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd.

Suggested Citation

  • Donna Brennan, 2008. "Missing markets for storage and the potential economic cost of expanding the spatial scope of water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 471-485, December.
    • Handle: RePEc:bla:ajarec:v:52:y:2008:i:4:p:471-485
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-8489.2008.00443.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Brennan, Donna C. & Scoccimarro, Michelle, 1999. "Issues in defining property rights to improve Australian water markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(1), pages 1-21, March.
    2. Donna Brennan, 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 403-423, September.
    3. M. D. Young & J. C. McColl, 2003. "Robust Reform: The Case for a New Water Entitlement System for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 225-234, June.
    4. 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.
    5. Anna Heaney & Gavan Dwyer & Stephen Beare & Deborah Peterson & Lili Pechey, 2006. "Third-party effects of water trading and potential policy responses ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 277-293, September.
    6. Heaney, Anna & Dwyer, Gavan & Beare, Stephen & Peterson, Deborah C. & Pechey, Lili, 2006. "Third-party effects of water trading and potential policy responses," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-17, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hrozencik, R. Aaron, 2018. "Energy, Food, and Water; Electricity Cooperative Pricing and Groundwater Irrigation Decisions," 2018 Annual Meeting, August 5-7, Washington, D.C. 274322, Agricultural and Applied Economics Association.
    2. Xie, Yang & Zilberman, David, 2014. "The Economics of Water Project Capacities under Optimal Water Inventory Management," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6c24636b, Department of Agricultural & Resource Economics, UC Berkeley.
    3. Xie, Yang & Zilberman, David, 2015. "Water-Storage Capacities versus Water-Use Efficiency: Substitutes or Complements?," 2015 Conference, August 9-14, 2015, Milan, Italy 211894, International Association of Agricultural Economists.
    4. Chi Truong, 2012. "An Analysis of Storage Capacity Reallocation Impacts on the Irrigation Sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(1), pages 141-159, January.
    5. Truong, Chi H. & Drynan, Ross G., 2013. "Capacity sharing enhances efficiency in water markets involving storage," Agricultural Water Management, Elsevier, vol. 122(C), pages 46-52.
    6. Brooks, Robert & Harris, Edwyna, 2014. "Price leadership and information transmission in Australian water allocation markets," Agricultural Water Management, Elsevier, vol. 145(C), pages 83-91.
    7. Jonathan Yoder & Micheal Brady & Joseph Cook, 2016. "Water Markets and Storage — Substitutes or Complements for Drought Risk Mitigation?," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-21, June.
    8. Adam Loch & Henning Bjornlund & Ronald McIver, 2011. "Achieving Targeted Environmental Flows: Alternative Allocation and Trading Models under Scarce Supply—Lessons from the Australian Reform Process," Environment and Planning C, , vol. 29(4), pages 745-760, August.
    9. Loch, Adam & Bjornlund, Henning & Wheeler, Sarah & Connor, Jeff, 2012. "Allocation trade in Australia: a qualitative understanding or irrigator motives and behaviour," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(1), pages 1-19, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarah Ann Wheeler, 2022. "Debunking Murray‐Darling Basin water trade myths," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 797-821, October.
    2. Brooks, Robert & Harris, Edwyna, 2014. "Price leadership and information transmission in Australian water allocation markets," Agricultural Water Management, Elsevier, vol. 145(C), pages 83-91.
    3. Edwyna Harris, 2011. "The Impact of Institutional Path Dependence on Water Market Efficiency in Victoria, Australia," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(15), pages 4069-4080, December.
    4. Brooks, Robert & Harris, Edwyna, 2008. "Efficiency gains from water markets: Empirical analysis of Watermove in Australia," Agricultural Water Management, Elsevier, vol. 95(4), pages 391-399, April.
    5. Brennan, Donna C., 2008. "Missing markets for storage and the potential economic cost of expanding the spatial scope of water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-15.
    6. Chi Truong, 2012. "An Analysis of Storage Capacity Reallocation Impacts on the Irrigation Sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(1), pages 141-159, January.
    7. Khan, Shahbaz & Rana, Tariq & Hanjra, Munir A. & Zirilli, John, 2009. "Water markets and soil salinity nexus: Can minimum irrigation intensities address the issue?," Agricultural Water Management, Elsevier, vol. 96(3), pages 493-503, March.
    8. Chi H. Truong, 2014. "A Two Factor Model for Water Prices and Its Implications for Evaluating Real Options and Other Water Price Derivatives," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(1), pages 23-45, March.
    9. Sarah Wheeler & Henning Bjornlund & Martin Shanahan & Alec Zuo, 2008. "Price elasticity of water allocations demand in the Goulburn-Murray Irrigation District ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(1), pages 37-55, March.
    10. Robert Brooks & Edwyna Harris & Yovina Joymungul, 2013. "Price clustering in Australian water markets," Applied Economics, Taylor & Francis Journals, vol. 45(6), pages 677-685, February.
    11. Potgieter, Petrus H., 2010. "Water and energy in South Africa – managing scarcity," MPRA Paper 23360, University Library of Munich, Germany.
    12. Changhai Qin & Shan Jiang & Yong Zhao & Yongnan Zhu & Qingming Wang & Lizhen Wang & Junlin Qu & Ming Wang, 2022. "Research on Water Rights Trading and Pricing Model between Agriculture and Energy Development in Ningxia, China," Sustainability, MDPI, vol. 14(23), pages 1-15, November.
    13. Lankford, Bruce, 2012. "Fictions, fractions, factorials and fractures; on the framing of irrigation efficiency," Agricultural Water Management, Elsevier, vol. 108(C), pages 27-38.
    14. M. Ejaz Qureshi & Jeff Connor & Mac Kirby & Mohammed Mainuddin, 2007. "Economic assessment of acquiring water for environmental flows in the Murray Basin ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 283-303, September.
    15. Wheeler, Sarah Ann & Zuo, Alec & Bjornlund, Henning, 2014. "Investigating the delayed on-farm consequences of selling water entitlements in the Murray-Darling Basin," Agricultural Water Management, Elsevier, vol. 145(C), pages 72-82.
    16. Craig D. Broadbent & David S. Brookshire & Don Coursey & Vince Tidwell, 2017. "Futures Contracts in Water Leasing: An Experimental Analysis Using Basin Characteristics of the Rio Grande, NM," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 569-594, November.
    17. Loch, Adam & Bjornlund, Henning & Wheeler, Sarah & Connor, Jeff, 2012. "Allocation trade in Australia: a qualitative understanding or irrigator motives and behaviour," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(1), pages 1-19, March.
    18. Juliane Haensch & Sarah Ann Wheeler & Alec Zuo & Henning Bjornlund, 2016. "The Impact of Water and Soil Salinity on Water Market Trading in the Southern Murray–Darling Basin," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 1-26, March.
    19. Raffensperger, John F., 2011. "Matching users' rights to available groundwater," Ecological Economics, Elsevier, vol. 70(6), pages 1041-1050, April.
    20. Huong Dinh & Manannan Donoghoe & Neal Hughes & Tim Goesch, 2019. "A micro-simulation model of irrigation farms in the southern Murray-Darling Basin," Papers 1903.05781, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ajarec:v:52:y:2008:i:4:p:471-485. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.