Efficiency Implications of Trading in a Bifurcated Market
Publication: Journal of Water Resources Planning and Management
Volume 147, Issue 8
Abstract
This study used detailed transaction data to analyze both the frequency of trading and the causes of price dispersion for short-term water leases in the Edwards Aquifer in Texas. The finding that trading activity closely follows episodic droughts confirms the efficiency-enhancing property of water markets. In this relatively homogeneous market, price dispersion poses a conundrum. The intertemporal price variation attributable to droughts indicates considerable price elasticity of demand indicative of potentially large welfare gains from trading. Even after controlling for mandated cutbacks in pumping, considerable price dispersion can be attributed to the type of transaction, such as between irrigation and nonirrigation users. Interestingly, transactions between nonirrigation users occur at 2.7 times the price as between irrigation users. This difference can be attributed to regulatory restrictions on water uses.
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Data Availability Statement
The primary data source is publically available from the Edwards Aquifer Authority. Data used in regression analysis are available upon request.
Acknowledgments
The data were provided by the Edwards Aquifer Authority and the San Antonio Water System and are available for replication upon request. Mark Freiburg of the Edwards Aquifer Authority generously helped with data assistance. Finally, the author wishes to thank the Property and Environmental Research Center (PERC) for a Julian Simon Fellowship enabling the completion of this project. Special thanks are in order for Ronald Griffin, Bruce McCarl, Wally Thurman, and PERC workshop participants for numerous helpful suggestions.
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Published In
Journal of Water Resources Planning and Management
Volume 147 • Issue 8 • August 2021
Copyright
© 2021 American Society of Civil Engineers.
History
Received: Oct 13, 2019
Accepted: Mar 9, 2021
Published online: Jun 8, 2021
Published in print: Aug 1, 2021
Discussion open until: Nov 8, 2021
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