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Type: Journal article
Title: Experimental evidence on the relative efficiency of forward contracting and tradable entitlements in water markets
Author: Bayer,, R.
Loch, A.
Citation: Water Resources and Economics, 2017; 20:1-15
Publisher: Elsevier BV
Issue Date: 2017
ISSN: 2212-4284
Statement of
Ralph C. Bayer, Adam Loch
Abstract: This paper experimentally tests if adding forward trading or tradable entitlements to already commonly used spot trade in water markets improves allocation and production efficiency. We find that forward contracts significantly increase efficiency, while tradable entitlements do not. The advantage of forward contracts increases further after a climate change shock, which reduces the expected total water supply. However, tradable water entitlements are rather more damaging than beneficial. Due to the complexity involved in pricing entitlements they not only fail to increase efficiency, but are often seriously mispriced, which results in concentrated holdings and considerable wealth inequality across market participants.
Keywords: Climate change shock; entitlements; experiment; forward contracts; water markets
Rights: © 2017 Elsevier B.V. All rights reserved.
RMID: 0030076808
DOI: 10.1016/j.wre.2017.10.001
Grant ID:
Appears in Collections:Global Food Studies publications

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