Factors Affecting Participation in Spot and Options Markets for Water
Publication: Journal of Water Resources Planning and Management
Volume 136, Issue 4
Abstract
In this paper, using a stylized mathematical simulation model, the participation of farmers in spot and options markets is analyzed in a two-period setting. Farmers assess the benefits from entering one of the two markets based upon anticipated water supplies in a subsequent period and relative expected profits in water and agricultural markets. The supply of water for urban use is a function of uncertain weather conditions and water demands for agricultural uses. The analysis offers insights on water market participation by deriving conditions that favor spot or options market participation. The findings highlight the importance of market size, agricultural profitability, and other parameters in predicting the potential success of spot and options market formation.
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Acknowledgments
Part of this work was done when the writer was a visiting scholar at USDA's Economic Research Services in Washington, D.C. The writer would like to thank (without implicating) Marcel Aillery and Noel Gollehon for their helpful input on an earlier version of this paper. The paper also benefitted from the comments of two anonymous reviewers and the associate editor.
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Information & Authors
Information
Published In
Journal of Water Resources Planning and Management
Volume 136 • Issue 4 • July 2010
Pages: 454 - 462
Copyright
© 2010 ASCE.
History
Received: Jul 8, 2008
Accepted: Jan 1, 2009
Published online: Oct 12, 2009
Published in print: Jul 2010
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