Coase and Colorado: Exploring the Effects of Transaction Costs on Water Markets

15 Pages Posted: 21 Dec 2017

See all articles by Jon Murphy

Jon Murphy

George Mason University - Department of Economics

Date Written: December 3, 2017

Abstract

Price theory analysis teaches us that, as the cost of using markets rises (ie transaction costs), we will expect to see either higher prices in the market, lower activity, or some combination of the two. We have a natural experiment to test this hypothesis in water exchange markets in Colorado. Colorado has a Byzantine regulatory process governing water market transactions. In 2003, Colorado passed legislation with the goal of streamlining the exchange process in certain cases. Using a regression analysis and differences-in-differences estimation with Texas as the control, I find Colorado's law change in 2003 had no statistically significant effect on water exchange prices in Colorado.

Keywords: Coase, Environmental Economics, Colorado, Water Markets

JEL Classification: K32, Q25, D47

Suggested Citation

Murphy, Jonathan, Coase and Colorado: Exploring the Effects of Transaction Costs on Water Markets (December 3, 2017). GMU Working Paper in Economics, Available at SSRN: https://ssrn.com/abstract=3088859 or http://dx.doi.org/10.2139/ssrn.3088859

Jonathan Murphy (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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