Experimental evidence on the relative efficiency of forward contracting and tradable entitlements in water markets

Bayer, Ralph C.; Loch, Adam

doi:10.1016/j.wre.2017.10.001

Cited by 15 publications

(8 citation statements)

References 36 publications

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“…Agricultural water markets include several different kinds of water trade: Permanent transfer of the ongoing right to extract water (e.g., Romano & Leporato, ); Lease of the ongoing right to extract water for a set period (e.g., Garrick & Aylward, ); Transfer of a temporary right to extract water, as a specific volume of water, or number of pumping hours (e.g., Shah et al, ; Yoskowitz, ); and Options contracts for future purchase of water under specific conditions (e.g., Bayer & Loch, ). …”

Section: Water Market Operationmentioning

confidence: 99%

The diversity of water markets: Prospects and perils for the SDG agenda

O’Donnell

Garrick

2019

WIREs Water

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Water markets are used in a wide variety of contexts to (a) increase access to water, and (b) increase water use efficiency by reallocating water to uses with a higher economic value. The global prevalence of water markets may help or hinder achievement of Sustainable Development Goal 6, making it essential to understand their role in water management. However, an overarching understanding of what water markets are and how they work across different regulatory and geographic contexts is surprisingly elusive. The literature separates water markets based on their formality and the nature of the goods and services being sold (typically either domestic water or agricultural), but growing water scarcity and increasing urban water demands means that agricultural and urban water use can no longer be considered separately. This review brings together two disparate strands of literature on water markets: (a) markets as a tool for re-allocation between agricultural uses (including both water rights and irrigation services), and (b) urban water markets to expand access to safe water supplies. Based on a review of 148 studies of water markets, this article explores the similarities and differences between urban and agricultural markets across the spectrum of regulatory formality to identify key findings in water market operation and outcomes, including critiques of market function. Bringing together the work on urban and agricultural water markets highlights important lessons on the role water markets can play in achieving SDG 6.

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Section: Water Market Operationmentioning

confidence: 99%

The diversity of water markets: Prospects and perils for the SDG agenda

O’Donnell

Garrick

2019

WIREs Water

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“…To inform these inquiries, we could employ econometric analytical approaches (e.g., rolling and recursive regressions coupled to right-or leftsided unit root tests as discussed by Gutierrez (2013) for commodity price bubbles). However, Australian water trade data does not include the following: (i) futures prices even though such trade is possible (Bayer and Loch, 2017); (ii) identified trades enabling differentiation between market participants; (iii) reliable/timely supply, demand and inventory predictions; or (iv) reliably priced assets. This is because central trade is non-existent and significant price differences can occur within daily data or across different markets for the same product (BoM, 2020b) enhancing the probability of speculative gains.…”

Section: Introductionmentioning

confidence: 99%

Markets, mis‐direction and motives: A factual analysis of hoarding and speculation in southern Murray–Darling Basin water markets

Loch¹,

Auricht²,

Adamson³

et al. 2021

Aus J Agri & Res Econ

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There is a long history of concern about speculation in water markets, and potential adverse impacts on agricultural water users. However, applications of traditional analysis into price increase drivers in water markets are challenging due to data limitations. To address this, we use speculation theory, most notably Hirshleifer's four fundamentals for speculative trade, to examine whether speculation or hoarding price increase drivers are evident in Australia's largest water market, the southern Murray-Darling Basin. While speculation is likely, and with good reason given the gains possible, we find no evidence of hoarding behaviour in market price or volume trends. It is more plausible that agricultural sectorsnotably horticultural usershave driven price increases given their requirements to access water at any cost during periods of low supply. These findings conform to theoretical expectations and help to inform badly needed insights into water market fundamentals required for future analysis. Overall, calls for stricter market controls on non-agricultural water users are not supported by our findings. However, greater transparency in water market and broker activity, arising from substantial improvements in the underlying data and trade regulations associated with water markets, would be an ideal outcome from any public police extension.

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“…In the GMID, temporary water markets have been found to generate significant efficiency gains (Brooks and Harris 2008). In addition to that, water markets in the MDB have become increasingly sophisticated with the emergence of additional market products, such as future contracts and leasing (Bayer and Loch 2017), evidence of price clustering (Brooks and Harris 2012;Brooks et al 2013), as well as improved market information sources from the Australian Bureau of Meteorology (BoM). These findings and developments underline the fact that water markets are similar to financial markets.…”

Section: Introductionmentioning

confidence: 99%