How Well Do U.S. Western Water Markets Convey Economic Information?

Rimsaite, Renata; Fisher‐Vanden, Karen; Olmstead, Sheila M.; Grogan, Danielle S.

doi:10.3368/wple.97.1.050719-0061r

Cited by 4 publications

(1 citation statement)

References 8 publications

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“…The high cost of water motivates the need for developing a more flexible approach for managing drought‐related shortfall risks within the C‐BT. Evidence suggests that more active leasing markets in Colorado, particularly during dry periods, could relieve some of this pressure on the price of permanent C‐BT shares (Rimsaite et al., 2021; Taylor et al., 1993). As proposed here, financial contracts that can facilitate responsive informal leases would enable the C‐BT project, which serves mostly high‐value urban activities, to quickly augment its supply of water from the UCRB, providing flexibility during times of severe drought.…”

Section: Methodsmentioning

confidence: 99%

Using Financial Contracts to Facilitate Informal Leases Within a Western United States Water Market Based on Prior Appropriation

Zeff,

Hadjimichael,

Reed

et al. 2024

Earth's Future

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The ability to reallocate water to higher‐value uses during drought is an increasingly important “soft‐path” tool for managing water resources in an uncertain future. In most of the Western United States, state‐level water market institutions that enable reallocation also impose substantial transaction costs on market participants related to regulatory approval and litigation. These transaction costs can be prohibitive for many participants in terms of both costs and lengthy approval periods, limiting transfers and reducing allocation efficiency, particularly during drought crises periods. This manuscript describes a mechanism to reduce transaction costs by adapting an existing form of informal leases to facilitate quicker and less expensive transfers among market participants. Instead of navigating the formal approval process to lease a water right, informal leases are financial contracts for conservation that enable more junior holders of existing rights to divert water during drought, thereby allowing the formal transfer approval process to be bypassed. The informal leasing approach is tested in the Upper Colorado River Basin, where drought and institutional barriers to transfers lead to frequent shortages for urban rights holders along Colorado's Front Range. Informal leases are facilitated via option contracts that include adaptive triggers and that define volumes of additional, compensatory, releases designed to mitigate impacts to instream flows and third parties. Results suggest that more rapid reallocation of water via informal leases could have resulted in up to $222 million in additional benefits for urban rights holders during the historical period 1950–2013.

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Section: Methodsmentioning

confidence: 99%

Using Financial Contracts to Facilitate Informal Leases Within a Western United States Water Market Based on Prior Appropriation

Zeff,

Hadjimichael,

Reed

et al. 2024

Earth's Future

View full text Add to dashboard Cite

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Why is water illiquid?: The NQH2O water index futures

Wang

2022

Applied Eco Perspectives Pol

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The newly launched water futures market faces a serious illiquidity problem with scarce trading volume. We examine the causes of the illiquidity based on the futures contract design literature and empirical analysis of spot water markets in the western United States. The primary cause of illiquidity is a lack of effective hedging demand for water futures due to the heterogeneity and limited size of spot water markets. The opaqueness of the water futures settlement index further deters the participation of traders. Moreover, the lack of public information on spot water market transactions also reduces its attraction to speculators.

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Informing drought mitigation policy by estimating the value of water for crop production

Rimsaite¹,

Gibson²,

Brozović³

2021

Environ. Res. Commun.

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Farmers use irrigation to mitigate drought risk and reduce yield uncertainty. A clear understanding of the monetary value of irrigation water and how it varies across time and space can help to inform farmers and policymakers about the potential impacts of water shortages and reduce uncertainty in decision making. Here, we introduce a framework for understanding the economic value of water used to produce corn in the central High Plains region during the period 2010–2017. Our analysis uses publicly available data for corn price and for irrigated and non-irrigated yields and incorporates irrigation requirement adjustments to account for the hydrologic balance. The findings suggest that the per unit value of irrigation water is highest not during severe droughts and not in more arid areas of the study region, but rather when and where irrigation can make the largest improvements to average crop productivity. Policy changes informed by these results might help to mitigate the impacts of future droughts on agriculture, especially in areas where climate change may lead to large increases in supplemental irrigation.

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How Well Do U.S. Western Water Markets Convey Economic Information?

Cited by 4 publications

References 8 publications

Using Financial Contracts to Facilitate Informal Leases Within a Western United States Water Market Based on Prior Appropriation

Using Financial Contracts to Facilitate Informal Leases Within a Western United States Water Market Based on Prior Appropriation

Why is water illiquid?: The NQH2O water index futures

Informing drought mitigation policy by estimating the value of water for crop production

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