Coase and Colorado: Exploring the Effects of Transaction Costs on Water Markets
15 Pages Posted: 21 Dec 2017
Date Written: December 3, 2017
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: Suggested Citation