Price Determination and Efficiency in the Market for South Platte Basin Ditch Company Shares

Payne, Matthew T.; Smith, Martin Ferguson; Landry, Clay

doi:10.1111/jawr.12215

Cited by 13 publications

(19 citation statements)

References 26 publications

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“…Although it has been frequently reported that the price of water transfer and the volume of water being traded are correlated [12,61,66], the influence of Quantity according to PVI ranking is much stronger than our anticipation. This may be a response to the economics of scale phenomenon in trade.…”

Section: Relative Importance Of Individual Variablescontrasting

confidence: 67%

“…That is, transaction cost per unit volume of water decreases as traded water volume increases. Consequently, water price falls as transactions involve greater size of water, which has been discussed in previous studies [12,66,67]. This result also indicates that the proxy variable State was very important as hypothesized, which implies that the price variation between states may largely be due to their differences in factors such as state laws, institutional arrangements and major water projects.…”

Section: Relative Importance Of Individual Variablessupporting

confidence: 63%

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Water Price Prediction for Increasing Market Efficiency Using Random Forest Regression: A Case Study in the Western United States

Lian

Bin

et al. 2019

Water

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The existence of water markets establishes water prices, promoting trading of water from low- to high-valued uses. However, market participants can face uncertainty when asking and offering prices because water rights are heterogeneous, resulting in inefficiency of the market. This paper proposes three random forest regression models (RFR) to predict water price in the western United States: a full variable set model and two reduced ones with optimal numbers of variables using a backward variable elimination (BVE) approach. Transactions of 12 semiarid states, from 1987 to 2009, and a dataset containing various predictors, were assembled. Multiple replications of k-fold cross-validation were applied to assess the model performance and their generalizability was tested on unused data. The importance of price influencing factors was then analyzed based on two plausible variable importance rankings. Results show that the RFR models have good predictive power for water price. They outperform a baseline model without leading to overfitting. Also, the higher degree of accuracy of the reduced models is insignificant, reflecting the robustness of RFR to including lower informative variables. This study suggests that, due to its ability to automatically learn from and make predictions on data, RFR-based models can aid water market participants in making more efficient decisions.

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Section: Relative Importance Of Individual Variablescontrasting

confidence: 67%

Section: Relative Importance Of Individual Variablessupporting

confidence: 63%

Water Price Prediction for Increasing Market Efficiency Using Random Forest Regression: A Case Study in the Western United States

Lian

Bin

et al. 2019

Water

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show abstract

“…Senior water rights transfers exhibited higher transaction costs, though senior rights did not influence completion times. Because senior rights are more valuable (Payne et al, 2014), applicants would rationally spend more on transaction costs to complete a transfer and opposing parties would rationally spend more to protect their water rights from injury.…”

Section: Discussionmentioning

confidence: 99%

“…The OLS water rights pricing model includes several types of water rights, two of which do not exist in all water divisions: certain Denver Basin groundwater rights legally termed "not nontributary groundwater" are found only in the South Platte and Arkansas River divisions, while sales of shares in a desirable mutual ditch company, the Farmers Reservoir and Irrigation Company, only exist in the South Platte River Division (Payne et al, 2014;Trout et al, 2011).…”

Section: 1029/2019wr025507mentioning

confidence: 99%

Water Markets, Water Courts, and Transaction Costs in Colorado

Womble

Hanemann

2020

Water Resources Research

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Water markets increasingly facilitate adaptation to water scarcity, but transaction costs can be barriers to expanded water marketing, particularly under water rights law in the western United States. However, transaction costs are rarely measured, and existing research commonly overlooks how transaction costs differ across individual water transfers and uncertainty in those costs. We collected hundreds of estimates of procedural transaction costs-costs incurred by transfer proponents for legal and hydrologic experts-by surveying 100 water professionals in the state of Colorado. There, water markets are among the most active in the United States, convey perhaps the most clearly defined private property rights of any state, and, unique to Colorado, require approval from specialized water courts. We elicited costs for water transfers with differing physical and legal characteristics, and we elicited separate assessments of (i) probabilities of legal outcomes for water transfers and (ii) transaction costs conditional on those outcomes. Then, we estimated expected transaction costs with a statistical model that combines (i) with (ii). The model reveals systematic differences in transaction costs, with scale economies and higher transaction costs for water-scarce regions, senior water rights, and higher-conflict legal outcomes. It also shows substantial transaction cost uncertainty, which itself can discourage trading. Our novel survey and estimation procedure develops a replicable approach for measuring transaction cost heterogeneity and uncertainty. Additionally, qualitative survey data we collected indicate transaction costs have increased over time due to growing competition for scarce water and that, despite high transaction costs, specialized water courts offer unique benefits. Key Points:• Water market transaction costs are uncertain, and this uncertainty depends upon legal procedures for water rights transfers • Transaction costs are higher in water-scarce regions, for higher-conflict transfers, and for senior water rights, and show scale economies • Transaction costs have grown over time due to increased competition for scarce water and more complex water rights operations Supporting Information:• Supporting Information S1

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“…Climatic conditions influence the availability of the resource, challenging predictions for what will be available to trade or sell. The way water moves through the landscape can limit possible transactions, related to above and below ground connectivity or to conveyance and related infrastructural issues that can arise when one attempts to move water to a new use (Payne, Smith, and Landry )—even with the South Platte’s intricate and extensive water delivery system.…”

Section: Environmental Justice Water Commodification and Market Tramentioning

confidence: 99%

Like Oil and Water in the American West: Water Market Access amid Unconventional Oil Production in Colorado

Malin

MacIlroy

2018

Rural Sociology

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Characterized as a “wicked” problem, water shortage in the American West will soon become a reality—due to increasing population, climate change, and decreased flows. Concurrently, water‐centered technologies such as hydraulic fracturing and directional drilling have facilitated the rapid and widespread growth of unconventional oil and gas (UOG) production in the United States. Water markets are increasingly touted as the best, most efficient, and fairest mechanisms for allocating vital and scarce resources. Yet this contention is largely unexplored at the food‐energy‐water nexus, particularly from an environmental justice perspective—where equitable water access for all users is a central concern. We utilize a case study in Colorado's South Platte basin based on 41 in‐depth interviews to show: (1) distortions created in regional water markets as wealthy UOG operators participate in them and (2) ways in which access to water markets becomes blocked for smaller, newer, or water‐poor water users. We also highlight how UOG producers’ presence may inhibit the formation of alternative systems for water exchange. Thus, the participation of UOG operators in Colorado's water markets appears to drive environmental injustice and increased inequity at the food‐energy‐water nexus, rather than facilitating fair or efficient access to water for all users.

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Price Determination and Efficiency in the Market for South Platte Basin Ditch Company Shares

Cited by 13 publications

References 26 publications

Water Price Prediction for Increasing Market Efficiency Using Random Forest Regression: A Case Study in the Western United States

Water Price Prediction for Increasing Market Efficiency Using Random Forest Regression: A Case Study in the Western United States

Water Markets, Water Courts, and Transaction Costs in Colorado

Like Oil and Water in the American West: Water Market Access amid Unconventional Oil Production in Colorado

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