Measuring Price Elasticities of Demand and Supply of Water Entitlements Based on Stated and Revealed Preference Data

19 Pages Posted: 15 Apr 2020

See all articles by Alec Zuo

Alec Zuo

University of South Australia

Sarah Ann Wheeler

University of South Australia

W.L. (Vic) Adamowicz

University of Alberta

Peter Boxall

University of Alberta - Faculty of Agriculture, Forestry & Home Economics

Darla Hatton-MacDonald

Charles Sturt University

Date Written: January 2016

Abstract

Estimates of price elasticities of water entitlements (known as permanent water or water rights in the United States) are complicated by data limitations and problems of endogeneity. To overcome these issues, we develop an approach to generate stated preference data and combine them with revealed preference data to estimate price elasticities from various types of water entitlement sales in the southern Murray‐Darling Basin, Australia. Our results suggest that price elasticities of demand and supply of high security water entitlements are inelastic in the relevant market price range between AUD $1,700 to $2,100 per mega‐liter, and that supply is relatively more inelastic than demand. For lower reliability water entitlements, the price elasticity of demand is estimated to be even more inelastic than high security water entitlements. The price elasticity of supply for general security water entitlements is similar to high security water entitlements, while the supply of low reliability water entitlements is extremely inelastic for our data set. The comparison between the stated and revealed preference data provides strong evidence of support for a data fusion approach; nevertheless, some differences in water sale preferences were found for irrigators choosing not to sell all of their water. The consistency of our results signals support for the use of this methodology in other water basins around the world.

Keywords: Contingent behavior, irrigation, price elasticity, water entitlements, water markets

Suggested Citation

Zuo, Alec and Ann Wheeler, Sarah and Adamowicz, W.L. (Vic) and Boxall, Peter and Hatton-MacDonald, Darla, Measuring Price Elasticities of Demand and Supply of Water Entitlements Based on Stated and Revealed Preference Data (January 2016). American Journal of Agricultural Economics, Vol. 98, Issue 1, pp. 314-332, 2016, Available at SSRN: https://ssrn.com/abstract=3574926 or http://dx.doi.org/10.1093/ajae/aav022

Alec Zuo (Contact Author)

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

Sarah Ann Wheeler

University of South Australia

37-44 North Terrace, City West Campus
Adelaide, 5001
Australia

W.L. (Vic) Adamowicz

University of Alberta

Edmonton, T6G 2R3
Canada

Peter Boxall

University of Alberta - Faculty of Agriculture, Forestry & Home Economics ( email )

Edmonton, Alberta
Canada

Darla Hatton-MacDonald

Charles Sturt University

Panorama Avenue
Bathurst, 2678
Australia

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