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Can a Water Bank Improve Groundwater Rights Market Efficiency?—A Study Based on Monte Carlo Simulations

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  • Yiying Chen

    (Business School, Hohai University, Nanjing 211100, China)

  • Taolu Luo

    (Ningxia Shuifa Group Co., Ltd., Yinchuan 750000, China)

  • Guiliang Tian

    (Business School, Hohai University, Nanjing 211100, China)

  • Qiuya Zhao

    (Business School, Hohai University, Nanjing 211100, China)

Abstract

Groundwater possesses a natural advantage as a reservoir, making it well-suited for storage. Introducing a water bank to the groundwater market not only reduces storage costs but also revitalizes the groundwater rights market, achieving synergy between the economic and ecological values of regional water resources. This study combines the core functions of a water bank to establish a theoretical framework for mechanisms concerning value appreciation and risk prevention. Approaching the topic from the perspectives of transaction costs and market price mechanisms, we employ the Monte Carlo algorithm for simulation to study the mechanistic impact of a water bank on the efficiency of the water market. It reveals that a water bank, compared to direct transactions between parties, can effectively reduce the number of transactions in the fragmented water rights market. Additionally, it effectively utilizes market transaction information to provide accurate pricing. Furthermore, we alter model parameters to explore the relationship between the average number of transactions in the market and supply–demand equilibrium. We also investigate how changes in the acceptable price range in the supply–demand market affect the pricing strategies of a water bank and open market pricing. These findings substantiate the necessity of developing a water bank in practice.

Suggested Citation

  • Yiying Chen & Taolu Luo & Guiliang Tian & Qiuya Zhao, 2023. "Can a Water Bank Improve Groundwater Rights Market Efficiency?—A Study Based on Monte Carlo Simulations," Sustainability, MDPI, vol. 16(1), pages 1-19, December.
    • Handle: RePEc:gam:jsusta:v:16:y:2023:i:1:p:54-:d:1303844
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    References listed on IDEAS

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    1. Carmine Guerriero, 2023. "Property rights, transaction costs, and the limits of the market," Economics of Governance, Springer, vol. 24(2), pages 143-176, June.
    2. Coggan, Anthea & Whitten, Stuart M. & Bennett, Jeff, 2010. "Influences of transaction costs in environmental policy," Ecological Economics, Elsevier, vol. 69(9), pages 1777-1784, July.
    3. Garrick, Dustin & Whitten, Stuart M. & Coggan, Anthea, 2013. "Understanding the evolution and performance of water markets and allocation policy: A transaction costs analysis framework," Ecological Economics, Elsevier, vol. 88(C), pages 195-205.
    4. McCann, Laura, 2013. "Transaction costs and environmental policy design," Ecological Economics, Elsevier, vol. 88(C), pages 253-262.
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