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

25 Pages Posted: 21 Dec 2017 Last revised: 11 Jan 2023

See all articles by Jon Murphy

Jon Murphy

Western Carolina University

Date Written: September 4, 2021

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 regression discontinuity design, I find Colorado's law change in 2003 had a 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 (September 4, 2021). 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)

Western Carolina University ( email )

1 University Way
Cullowhee, NC 28723
United States

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