Mechanisms for Addressing Third Party Impacts Resulting from Voluntary Water Transfers

University of Massachusetts, Amherst Working Paper No. 2003-7

38 Pages Posted: 1 Jan 2004

See all articles by James J. Murphy

James J. Murphy

University of Alaska Anchorage

Ariel Dinar

World Bank - Agriculture and Rural Development Department

Richard E. Howitt

University of California, Davis

Erin Mastrangelo

University of Massachusetts at Amherst

Stephen Rassenti

Economic Science Institute, Chapman University

Vernon L. Smith

Chapman University - Economic Science Institute; Chapman University School of Law

Date Written: August 2003

Abstract

This paper uses laboratory experiments to test alternative water market institutions designed to protect third party interests. The institutions tested include taxing mechanisms that raise revenue to compensate affected third parties and a market in which third parties actively participate. The results indicate that there are some important trade-offs in selecting a policy option. Active third party participation in the market is likely to result in free riding that may erode some or all of the efficiency gains, and may introduce volatility into the market. Taxing transfers and compensating third parties offers a promising balance of efficiency, equity and market stability.

Keywords: Arbitration, experiments, third party impacts, environmental impacts, water markets

JEL Classification: Q25, C9, H41, Q28

Suggested Citation

Murphy, James J. and Dinar, Ariel and Howitt, Richard E. and Mastrangelo, Erin and Rassenti, Stephen and Smith, Vernon L., Mechanisms for Addressing Third Party Impacts Resulting from Voluntary Water Transfers (August 2003). University of Massachusetts, Amherst Working Paper No. 2003-7. Available at SSRN: https://ssrn.com/abstract=437600 or http://dx.doi.org/10.2139/ssrn.437600

James J. Murphy (Contact Author)

University of Alaska Anchorage ( email )

Anchorage, AK
United States
907-786-1936 (Phone)

HOME PAGE: http://faculty.cbpp.uaa.alaska.edu/jmurphy/

Ariel Dinar

World Bank - Agriculture and Rural Development Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-0434 (Phone)

Richard E. Howitt

University of California, Davis ( email )

One Shields Avenue
Department of Agricultural and Resource Economics
Davis, CA 95616
United States
(530) 752-1521 (Phone)

Erin Mastrangelo

University of Massachusetts at Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

Stephen Rassenti

Economic Science Institute, Chapman University ( email )

One University Drive
Wilkinson Hall 104
Orange, CA 92866
United States
714-628-2802 (Phone)

Vernon L. Smith

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States
714-628-2830 (Phone)

Chapman University School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States

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