Do neighbors influence irrigators’ permanent water selling decisions in Australia?

Abstract

There has been increasing emphasis by scholars in trying to understand how neighbors influence farmers’ decision-making. In Australia, historically there has always been strong anecdotal evidence of peer pressure on irrigators’decisions to not sell permanent water entitlements. This local pressure increased with the advent of the federalgovernment into the Murray-Darling Basin water market to purchase permanent water for the environment fromvoluntary sellers from 2008 onwards. Selling permanent water entitlements is associated with perceptions aboutrural community decline. This article formally tests whether a neighborhood effect can be detected in permanentwater entitlement selling decisions, using farm survey data across a number of years from the southern Murray-Darling Basin (n = 1462). We hypothesize that the more that an irrigator’s neighbors sell permanant water in a givenarea, the more likely that an individual irrigator will also sell permanant water given a decrease in social pressure.Irrigators’ locations were geocoded and locational characteristics (regional socio-economic characteristics, land andwater quality) were linked to the survey data covering farm, farmer and water trade characteristics. There wassignificant evidence of a farmer neighborhood effect, with higher likelihood of permanent water sales occurring inareas where more neighbors had sold permanent water, holding other locational and spatial influences cons