Water Trading: Locational Water Rights, Economic Efficiency, and Third-Party Effect

Authored by Ming-Feng Hung, Daigee Shaw, Bin-Tzong Chie

Date Published: 2014-03

DOI: 10.3390/w6030723

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative

Model Code URLs: Model code not found

Abstract

Rivers flow downstream and unidirectionally. However, this fact has not yet been utilized in the institutional design for water trading. By utilizing this characteristic, we first designed a water trading system of locational water rights. This new system is able to mitigate the return flow-related and instream flow-related third-party effects of volumetric reliability from water transfers. We provided mathematical proof of its economic efficiency. We then applied this water trading system to the case of the Choushui River basin in Taiwan. In this area, agriculture is highly developed while domestic and industrial water demands have increased rapidly. Using an agent-based model simulation, we estimated the potential economic benefits of implementing the system of locational water rights in the Choushui River basin.

Tags

water market economic efficiency locational water right return flows third-party effect