Alternative structures for water rights markets: Overview and hypothetical case study

Eheart, J. Wayland; Lyon, Randolph M.; Wong, Benedict D.C.

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https://hdl.handle.net/2142/90273 Copy

Description

Title

Alternative structures for water rights markets: Overview and hypothetical case study

Author(s)

• Eheart, J. Wayland
• Lyon, Randolph M.
• Wong, Benedict D.C.

Contributor(s)

• University of Illinois at Urbana-Champaign
• University of Texas at Austin

Issue Date

1983-01

Keyword(s)

• Water resource development
• Water resource development--Illinois
• Water policy
• Water rights
• Markets
• Water permits
• Economics

Geographic Coverage

Illinois (state)

Abstract

The design of systems of marketable permits for water consumption from natural watercourses is examined through a qualitative overview and a quantitative quasi-empirical, quasi-hypothetical case study. For the work reported upon here, the most important considerations are those associated with: 1) uncertainty of future streamflows and economic conditions, 2) locational issues, and 3) efficient and effective functioning of the markets. Particular attention is given to the problem of implementing marketable rights systems in regions presently following the riparian doctrine. In these regions the most important design decisions include: the basis of definition of permits, the means for initially distributing them, the type of market mechanism used for their transfer after they are issued, and the restrictions placed on their use and transfer. These design decisions are examined here with respect to program objectives including: economic efficiency, equity, ease of administration and implementation, and maintenance of instream flows. Alternative approaches to the design problems are discussed and trade-offs implied by the decisions are identified. The efficiency of two marketable water rights systems in a lentic (lake-like) structure is assessed quantitatively for a case study based on hypothetical irrigation water use. Water rights markets are simulated on the bases of no foresight and perfect foresight on the parts of users, and the economic outcomes of these markets are evaluated from both ex ante and ex post perspectives. The market outcomes are compared to the optimal (efficient) scheme and to two alternative non-market policies. Distributional aspects of markets are examined on the basis of individual financial gain to the users. Simulation results show that higher efficiency is obtained for the two market systems than for the non-market policies and that the market systems recoup about 95% of the economic value of the optimal distribution. The results suggest that most of the 5% efficiency loss should be attributed to the restrictions imposed by the definition of the rights, rather than the users' inability to predict future events.

Publisher

University of Illinois at Urbana-Champaign. Water Resources Center

Type of Resource

text

Language

en

Permalink

http://hdl.handle.net/2142/90273

Sponsor(s)/Grant Number(s)

• U.S. Department of the Interior
• U.S. Geological Survey

Copyright and License Information

Copyright 1983 held by J . Wayland Eheart, Randolph M. Lyon, Benedict D.C. Wong

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