Valuing Options in Water Markets: A Laboratory InvestigationKristiana Hansen, Jonathan D. Kaplan and Stephan Kroll () No 108722, Working Papers from Colorado State University, Department of Agricultural and Resource Economics Abstract: Risk and reliability dominate water supply discussions in the arid western United States in light of increasing demand and finite, weather-dependant supply. Thus water agencies increasingly turn to contractual mechanisms such as dry-year options to manage supply risk in advance of need. Although a few water agencies across the West have implemented dry-year options, sufficient data for conventional econometric analysis do not yet exist. We thus utilize experimental economics to analyze the effect of annual dry-year options on water markets. We consider how market structure (competitive versus monopsony power) and option contract availability affect water price and allocation within a market and find that realized gains from trade are on average higher when options can be traded, by 46% in competitive markets and by 63% in dominant buyer markets. Important for the political feasibility of such markets, we also find that gains from trade, once an options market is available, are much more evenly distributed between the single buyer and the many sellers in the case of monopsony. Keywords: Resource; /Energy; Economics; and; Policy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ags:csdawp:108722 Access Statistics for this paper More papers in Working Papers from Colorado State University, Department of Agricultural and Resource Economics Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.