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Measuring Price Elasticities of Demand and Supply of Water Entitlements Based on Stated and Revealed Preference Data

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  • Alec Zuo
  • Sarah Ann Wheeler
  • W.L. (Vic) Adamowicz
  • Peter C. Boxall
  • Darla Hatton-MacDonald

Abstract

Estimates of price elasticities of water entitlements (known as permanent water or water rights in the United States) are complicated by data limitations and problems of endogeneity. To overcome these issues, we develop an approach to generate stated preference data and combine them with revealed preference data to estimate price elasticities from various types of water entitlement sales in the southern Murray-Darling Basin, Australia. Our results suggest that price elasticities of demand and supply of high security water entitlements are inelastic in the relevant market price range between AUD ${{\$}}$1,700 to ${{\$}}$2,100 per mega-liter, and that supply is relatively more inelastic than demand. For lower reliability water entitlements, the price elasticity of demand is estimated to be even more inelastic than high security water entitlements. The price elasticity of supply for general security water entitlements is similar to high security water entitlements, while the supply of low reliability water entitlements is extremely inelastic for our data set. The comparison between the stated and revealed preference data provides strong evidence of support for a data fusion approach; nevertheless, some differences in water sale preferences were found for irrigators choosing not to sell all of their water. The consistency of our results signals support for the use of this methodology in other water basins around the world.

Suggested Citation

  • Alec Zuo & Sarah Ann Wheeler & W.L. (Vic) Adamowicz & Peter C. Boxall & Darla Hatton-MacDonald, 2016. "Measuring Price Elasticities of Demand and Supply of Water Entitlements Based on Stated and Revealed Preference Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(1), pages 314-332.
    • Handle: RePEc:oup:ajagec:v:98:y:2016:i:1:p:314-332.
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    File URL: http://hdl.handle.net/10.1093/ajae/aav022
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    Cited by:

    1. Pérez-Blanco, C. D & Standardi, G., 2019. "Farm waters run deep: a coupled positive multi-attribute utility programming and computable general equilibrium model to assess the economy-wide impacts of water buyback," Agricultural Water Management, Elsevier, vol. 213(C), pages 336-351.
    2. Sarah Ann Wheeler & Céline Nauges & Alec Zuo, 2021. "How stable are Australian farmers’ climate change risk perceptions? New evidence of the feedback loop between risk perceptions and behaviour," Post-Print hal-04670841, HAL.
    3. Seidl, Constantin & Wheeler, Sarah Ann & Zuo, Alec, 2020. "High turbidity: Water valuation and accounting in the Murray-Darling Basin," Agricultural Water Management, Elsevier, vol. 230(C).
    4. Perez Blanco, C.D., 2018. "Waters run deep: A coupled Revealed Preference and CGE model to assess the economy-wide impacts of agricultural water buyback," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277028, International Association of Agricultural Economists.
    5. Sarah Ann Wheeler & Alec Zuo & John Kandulu, 2021. "What Water are We Really Pumping? The Nature and Extent of Surface and Groundwater Substitutability in Australia and Implications for Water Management Policies," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1550-1570, December.
    6. Pérez-Blanco, C.D. & Gutiérrez-Martín, C., 2017. "Buy me a river: Use of multi-attribute non-linear utility functions to address overcompensation in agricultural water buyback," Agricultural Water Management, Elsevier, vol. 190(C), pages 6-20.
    7. 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.
    8. Changxin Xu & Lihua Yang & Bin Zhang & Min Song, 2021. "Bargaining power and information asymmetry in China’s water market: an empirical two-tier stochastic frontier analysis," Empirical Economics, Springer, vol. 61(5), pages 2395-2418, November.
    9. R. J. Farquharson & J. W. Freebairn & J. A. Webb & M. J. Stewardson & T. Ramilan, 2017. "An Economic Framework for Sharing Water Within a River Catchment," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1-19, July.
    10. Claire Settre & Jeff Connor & Sarah Ann Wheeler, 2017. "Reviewing the Treatment of Uncertainty in Hydro-economic Modeling of the Murray–Darling Basin, Australia," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1-35, July.
    11. Philip Kofi Adom & Joonho Yeo & Lin Zhang, 2021. "Is water use sustainable and efficient in China? Evidence from a macro level analysis," Applied Economics, Taylor & Francis Journals, vol. 53(53), pages 6166-6183, November.

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