Water Trading: Locational Water Rights, Economic Efficiency, and Third-Party Effect

Abstract

Rivers flow downstream and unidirectionally. However, this fact has not yet been utilized in the institutional design for water trading. By utilizing this characteristic, we first designed a water trading system of "locational water rights." This new system is able to mitigate the return flow-related and instream flow-related third-party effects of volumetric reliability from water transfers. We provided mathematical proof of its economic efficiency. We then applied this water trading system to the case of the Choushui River basin in Taiwan. In this area, agriculture is highly developed while domestic and industrial water demands have increased rapidly. Using an agent-based model simulation, we estimated the potential economic benefits of implementing the system of locational water rights in the Choushui River basin.

Introduction to Water Markets: an overview and systematic literature review

“…water market successes and failures Qualitative and quantitative Burness and Quirk, 1980;Yoskowitz, 1999;Bakker, 2002;Zegarra, 2002;Bauer, 2010;Zavalloni et al, 2014;Bauer, 2015 Water trade modelling Quantitative Louw and van Schalkwyk, 2001;Turral et al, 2005;Zaman et al, 2009;Alevy et al, 2010;Loch et al, 2011;Wittwer, 2011;Hung et al, 2014;Regnacq et al, 2016;Wheeler et al, 2008aWheeler et al, , 2008bZuo et al, 2019 Johnson, 1971;Shupe et al, 1989;Michelsen and Young, 1993;Rosegrant and Binswanger, 1994;Ríos and Quiroz, 1995;Matthews, 2004;Solanes and Jouravlev, 2006;Whitford and Clark, 2007;Donohew, 2009;McKenzie, 2009;Nordblom et al, 2011;Raffensperger, 2011;Lefebvre et al, 2012;Jamshidi et al, 2016;Young, 2019 Inter-state water governance Qualitative Utton, 1985;Rodgers, 1986;Wheeler, 2014 Water use efficiency Quantitative Srivastava et al, 2009;Manjunatha et al, 2011;Razzaq et al, 2019 Environmental impacts Quantitative Tisdell, 2001;…”

Water Scarcity and Water Trade: Turkish Attempts to Supply a Drying Region

“…In addition to this, current water prices usually do not cover the true value of water. In fact, keeping water prices low has led to further water scarcity and ecological and environmental damages in areas where water was exploited, however the higher prices could put water-scarce areas in a difficult position (Hung, Shaw, Chie 2014). The ideal model of water trading has been defined by researchers (Diao, Roe, Doukkali 2005) based on the "two levels, three characteristics" factor.…”

Determinants of water purchases by pistachio producers in an informal groundwater market: a case study from Iran

“…The water market can have negative effects on the existence of rural communities by encouraging many to leave the sector (Kiem, 2013). One of the possible externalities of expansion of the water market is the reduction of in-stream flow which affects the environment or downstream users (Hadjigeorgalis, 2008;Hung et al, 2014). Involving environment in the water market is a remedy to the problem by the buyback of entitlements for supporting the environment as done by the Australian government in 2007 (Connell & Grafton, 2011).…”

“…Involving environment in the water market is a remedy to the problem by the buyback of entitlements for supporting the environment as done by the Australian government in 2007 (Connell & Grafton, 2011). Hung et al (2014) have promoted the idea of 'locational water rights' to deal with unidirectional downstream flow of the river to deal with environmental and downstream externalities. Groundwater markets have positive equity, efficiency and sustainability impacts in favourable hydro-geological conditions.…”