A simulation of water markets with transaction costs

Exploring China’s Farmer-Level Water-Saving Mechanisms: Analysis of an Experiment Conducted in Taocheng District, Hebei Province

“…Over the past decade, the Chinese government has tried to develop a water rights system to enable the allocation of water entitlements and the transfer of water rights [18]. However, a number of studies have described a variety of barriers to the establishment of open water markets [19][20][21][22][23]. The experience in China supports such findings.…”

“…Many studies have highlighted transaction costs as the major constraint for the success of water rights trading systems [26,27]. Water trading regime modeling studies that simulate the effects of transaction costs provide additional evidence that trans-jurisdictional water markets can lead to considerable potential benefits if transaction costs are not present; with transaction costs, water trading benefits increase as transaction costs decrease [23,28].…”

Water Governance 2.0: A Review and Second Generation Research Agenda

“…However, the prohibitive costs of water trading and unclear water rights has led to governments taking a more active role in facilitating the emergence of quasi water markets-through legal infrastructure and the assignment of water rights which would otherwise fail in a market setting. Examples of these include water markets in Chile (Bauer 2004) and more recently in China (Wang 2012). However, in some developing countries with weak legal infrastructure, where water rights are unclear and enforcement is often weak or corrupted, water markets remain undeveloped and are less likely to succeed (Bjornlund and McKay 2002).…”

Institutional legitimacy: an exegesis of normative incentives

“…And the water rights transfers between agriculture and industry, have been encouraged by the central government and the YRCC, have been regarded as a win-win solution, not only supplying water for new industries but also promoting water efficiency in agricultural water use. Hitherto, more than two dozen cases of water rights transfer had occurred in Inner Mongolia and Ningxia, with the characteristic of "investing in water saving and transferring water rights" (Wang, 2012).…”