Water scarcity presents an obstacle to economic development in the western United States. Water rights markets help improve water allocation, allowing states to derive the highest economic benefit from available resources, and supporting new uses and economic development. However, the implicit (marginal) prices of water rights attributes are uncertain. To address this problem, we apply econometric analysis to a unique dataset to estimate the implicit values that market participants place on the attributes of shares of ditch company water rights in Colorado's South Platte River Basin. Our analysis demonstrates that ditch company share buyers value proximity of water diversion, reliability of water deliveries, and temporal flexibility of water use. To assess reliability we introduce the use of the coefficient of variation to capture, in one variable, the randomness of supply from ditch company shares that are not a single water right, but a portfolio of rights with different appropriation dates. Finally, we test and correct for spatial autocorrelation for the first time in a study of water market prices.(KEY TERMS: water markets; water rights; water prices.) Payne, Matthew T

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Water rights markets in the western United States have expanded over the last 40 years, as a result of population growth in the West and Southwest, and limited development of new storage. Until 2008, house prices, home construction and population growth appeared to be locked in an ever-increasing upward trend. With little historical experience to the contrary, water right market prices similarly appeared to be driven by real estate development. The collapse of the housing market in the last four years provides an opportunity to examine the connection between the real estate and water markets. It is found that Middle Rio Grande Basin water right prices are influenced by housing prices, per capita income in the buyer's county, buyer type, point of diversion, and transaction volume. However, significant price dispersion remains, raising the question of how efficiently this market is currently working.

This study updates analysis of western water markets with data from thirteen river basins in eight states based on analysis of over 7,000 transactions from 2002 to 2019. We take a new approach to characterizing the time trend in prices across basins by estimating hedonic price indices. In doing so, we do not attempt to explain how prices are determined but rather to characterize general price movements across the region. There have been nine widely cited analyses of trends in western water rights prices and trading. Since 2010, when Stratecon ceased publishing the Water Strategist, no one has extended this time series until now (Stratecon Inc. Accessed January 25, 2021). Researchers, planners, and investors remain keenly interested in water markets, but limited historic data are available on general water right price trends and volatility. Understanding general price movements over time help to fill this gap. Our analysis confirms the findings of earlier studies that urban buyers systematically pay premium prices relative to agricultural or environmental buyers, and that prices vary significantly within basins, across basins and states, and over time. Results from the pooled-period method indicate an annual rate of appreciation of around 2.8% and results from the adjacent-period method indicate a rate of 5.1%. Both methods suggest that water right prices from 2002 to 2019 have increased at a rate similar to the general price level.

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