All-in-Auctions for Water

Abstract

This paper proposes a novel mechanism for reallocating temporary water flows or permanent water rights. The All-in-Auction (AiA) increases efficiency and social welfare by reallocating water without harming water rights holders. AiAs can be used to allocate variable or diminished flows among traditional or new uses. AiAs are appropriate for use within larger organizations that distribute water among members, e.g., irrigation districts or wholesale water agencies. Members would decide when and how to use AiAs, i.e., when transaction costs are high, environmental constraints are binding, or allocation to outsiders is desired. Experimental sessions show that an AiA reallocates more units with no less efficiency that traditional two-sided auctions.

Keywords: multi-unit auction, scarcity, water allocation, auction design, endowment effect

JEL Classification: D02, D44, Q25