A Comparative Assessment of Water Markets: Insights from the Murray-Darling Basin of Australia and the Western US

ICER Working Paper No. 8/2011

33 Pages Posted: 6 Jun 2011

See all articles by Gary D. Libecap

Gary D. Libecap

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management; University of Arizona - Karl Eller Center; National Bureau of Economic Research (NBER); PERC - Property and Environment Research Center

R. Quentin Grafton

Australian National University (ANU) - Centre for Resource and Environmental Studies (CRES); Australian National University (ANU) - Crawford School of Public Policy

Eric C. Edwards

Utah State University

R. J. O'Brien

affiliation not provided to SSRN

Clay Landry

affiliation not provided to SSRN

Date Written: June 6, 2011

Abstract

Water markets in Australia’s Murray-Darling Basin (MDB) and the US west are compared in terms of their ability to allocate scarce water resources. The study finds that the gains from trade in the MDB are worth hundreds of millions of dollars per year. Total market turnover in water rights exceeds $2 billion per year while the volume of trade exceeds over 20% of surface water extractions. In Arizona, California, Colorado, Nevada, and Texas, trades of committed water annually range between 5% and 15% of total state freshwater diversions with over $4.3 billion (2008 $) spent or committed by urban buyers between 1987 and 2008. The two-market comparison suggests that policy attention should be directed towards ways to promote water trade while simultaneously mitigating the legitimate third party concerns about how and where water is used, especially conflicts between consumptive and in situ uses of water. The study finds that institutional innovation is feasible in both countries and that further understanding about the size, duration, and distribution of third-party effects from water trade, and how these effects might be regulated, can improve water markets to better manage water scarcity.

Keywords: water markets, US west, Murray-Darling Basin, gains from trade

Suggested Citation

Libecap, Gary D. and Grafton, R. Quentin and Edwards, Eric C. and O'Brien, R. J. and Landry, Clay, A Comparative Assessment of Water Markets: Insights from the Murray-Darling Basin of Australia and the Western US (June 6, 2011). ICER Working Paper No. 8/2011. Available at SSRN: https://ssrn.com/abstract=1858723 or http://dx.doi.org/10.2139/ssrn.1858723

Gary D. Libecap (Contact Author)

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

4670 Physical Sciences North
Santa Barbara, CA 93106-5131
United States
805-893-8611 (Phone)

HOME PAGE: http://www.esm.ucsb.edu/people/usernew.asp?user=glibecap

University of Arizona - Karl Eller Center ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States
520-621-4821 (Phone)
520-626-5269 (Fax)

HOME PAGE: http://www.bpa.arizona.edu/~libecap

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

R. Quentin Grafton

Australian National University (ANU) - Centre for Resource and Environmental Studies (CRES) ( email )

Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://cres.anu.edu.au/~qgrafton

Australian National University (ANU) - Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Eric C. Edwards

Utah State University ( email )

UMC 4835
Logan, UT 84341
United States

R. J. O'Brien

affiliation not provided to SSRN ( email )

Clay Landry

affiliation not provided to SSRN ( email )

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