Do Markets Promote More Efficient And Higher Value Water Use? Tracing Evidence Over Time In An Australian Water Market
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This paper analyses buyers and sellers of water entitlements in Australia based on surveys conducted during three time periods from 1992 to 2006 to identify whether water markets have facilitated a reallocation of water from inefficient, unproductive and low-value users to efficient, productive and high-value users. There is evidence that the entitlement market has an increasing impact on the way water is used and facilitates reallocation. While the early markets mainly activated previously unused water, there is evidence that as the market matures, more actively used water is being sold reducing the productive capacity of the selling property. The evidence suggests that many sellers reduced their irrigated area during the last five years, in response to prices in the seasonal market for water allocations, before eventually selling their entitlement. Keywords: water trading, water reallocation, community impact, Australia. 1 Introduction As water scarcity intensifies around the world water markets are increasingly being proposed to facilitate a reallocation of water from inefficient low-value users to efficient high-value users to minimize the overall economic impact of scarcity. The expectation is that the buyers will be able and willing to pay the sellers a price that compensates them for their losses. However markets in water entitlements (the market in which the long term entitlement to receive annual water allocations is traded) have been slow to evolve. Australia is one of a few countries where entitlement markets have been operating for some time. Australia therefore provides an opportunity to investigate whether the market has
water trading, water reallocation, community impact, Australia.