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Expanding Water Markets in the Western United States: Barriers and Lessons from Other Natural Resource Markets

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  • Bryan Leonard
  • Christopher Costello
  • Gary D Libecap

Abstract

This article identifies key barriers to the expansion of surface water markets in the western United States and examines the lessons learned from the development of market-based management of other resources. We argue that the most salient barriers to water market development are conducting and verifying trades of environmental goods and services and the challenges associated with the political economy of defining, altering, and transferring property rights. We review the extensive economics literature on markets for fishing rights, air pollution abatement, and water quality; discuss the lessons learned from experience with these markets; and suggest specific reforms for increasing the role of markets in water resource management, including minimizing the cost of trades and implementing strategies to address political opposition.

Suggested Citation

  • Bryan Leonard & Christopher Costello & Gary D Libecap, 2019. "Expanding Water Markets in the Western United States: Barriers and Lessons from Other Natural Resource Markets," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(1), pages 43-61.
    • Handle: RePEc:oup:renvpo:v:13:y:2019:i:1:p:43-61.
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    File URL: http://hdl.handle.net/10.1093/reep/rey014
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    Cited by:

    1. Billy A. Ferguson & Paul Milgrom, 2024. "Market Design for Surface Water," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.
    2. Julia Talbot-Jones & Sophie Hale & Suzie Greenhalgh, 2020. "Review of policy instruments for freshwater management Abstract: As pressures on water resources increase in New Zealand, so does the need for alternative policy approaches that can adequately address," Working Papers 20_10, Motu Economic and Public Policy Research.
    3. Smith, Steven M., 2021. "The relative economic merits of alternative water right systems," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    4. Françeska Tomori & Erik Ansink & Harold Houba & Nick Hagerty & Charles Bos, 2024. "Market power in California's water market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(3), pages 1274-1299, May.
    5. Browne, Oliver R. & Ji, Xinde James, 2023. "The Economic Value of Clarifying Property Rights: Evidence from Water in Idaho’s Snake River Basin," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    6. Wilson, Kyle D., 2023. "Simulating a Water Market: An In-Class Activity to Compare Market Efficiency under Various Institutions and Relative Advantages of Agents," Applied Economics Teaching Resources (AETR), Agricultural and Applied Economics Association, vol. 5(3), September.
    7. Sheng, Jichuan & Cheng, Qian & Yang, Hongqiang, 2024. "Water markets and water inequality: China's water rights trading pilot," Socio-Economic Planning Sciences, Elsevier, vol. 94(C).
    8. Tomori, Françeska & Ansink, Erik & Houba, Harold & Hagerty, Nick & Bos, Charles, 2021. "Market power in California’s water market," Working Papers 2072/534854, Universitat Rovira i Virgili, Department of Economics.
    9. Handong Lyu & Hongfei Xing & Taixiang Duan, 2024. "Optimizing Water Resource Allocation for Food Security: An Evaluation of China’s Water Rights Trading Policy," Sustainability, MDPI, vol. 16(23), pages 1-23, November.
    10. Sheng, Jichuan & Yang, Hongqiang, 2024. "Linking water markets with payments for watershed services: the eastern route of China's South-North Water Transfer Project," Agricultural Water Management, Elsevier, vol. 295(C).
    11. Bruno, Ellen M. & Jessoe, Katrina, 2021. "Missing markets: Evidence on agricultural groundwater demand from volumetric pricing," Journal of Public Economics, Elsevier, vol. 196(C).
    12. Hanbing Liu & Guobao Luo & Peilei Zhou & Haibin Wei & Wenjun Li & Di Yu, 2019. "Flexural-Fatigue Properties of Sustainable Pervious Concrete Pavement Material Containing Ground Tire Rubber and Silica Fume," Sustainability, MDPI, vol. 11(16), pages 1-16, August.
    13. Li, Guifang & Shi, Minjun & Zhou, Dingyang, 2021. "How much will farmers be compensated for water reallocation from agricultural water to the local ecological sector on the edge of an oasis in the Heihe River Basin?," Agricultural Water Management, Elsevier, vol. 249(C).
    14. Feng Li & Xuewan Du & Pengchao Zhang & Huimin Li & Xiaoxia Fei, 2023. "Co-Evolutionary Mechanism of Stakeholders’ Strategies in Comprehensive Agricultural Water Price Reform: The View of Evolutionary Game Based on Prospect Theory," Sustainability, MDPI, vol. 15(15), pages 1-31, August.
    15. Cuimei Lv & Huiqin Li & Minhua Ling & Xi Guo & Zening Wu & Changkuan Gu & Yang Li, 2021. "An Innovative Emergy Quantification Method for Eco-economic Compensation for Agricultural Water Rights Trading," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 35(3), pages 775-792, February.

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