Empirical application of rubinstein bargaining model in western u.s. water transactions

Rowan Isaaks, Bonnie Colby

Research output: Contribution to journalArticle

Abstract

Water transactions are proposed as a policy tool for increasing regional drought resilience and improving allocative efficiency. However, water trading deviates considerably from classical competitive markets and alternative theoretical approaches are useful for understanding water market structure and performance. In this paper, we model a bilateral water transaction using a non-cooperative bargaining model. Then we empirically test predictions regarding time preference, outside options, and water supply risk. The econometric analysis encompasses two transaction regions: Colorado's Front Range and New Mexico's Middle Rio Grande Basin. We find evidence suggesting that larger cities pay lower prices in water transactions, faster growing and higher income cities pay higher prices and that prices are higher when snowpack variability is higher. Findings suggest that a stronger time preference results in a less favorable price for urban buyers and that buyer risk-Aversion is a greater disadvantage in bargaining in locations with greater water supply variability.

Original languageEnglish (US)
Article number1950010
JournalWater Economics and Policy
Volume6
Issue number1
DOIs
StatePublished - Jan 1 2020

Keywords

  • bargaining power
  • non-cooperative bargaining
  • risk
  • Rubenstein bargaining model
  • time preference
  • Water rights
  • water transactions

ASJC Scopus subject areas

  • Business and International Management
  • Water Science and Technology
  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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