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A Global Comparative Analysis Of Water Markets

Congress: 2015
Author(s): Guillermo Donoso (Santiago, Chile), Jennifer Maller-Gulland
Guillermo Donoso
Water Law and Economics Center
Pontificia Universidad Católica de Chile
gdonosoh@uc.cl


Keyword(s): Sub-theme 7: Global challenges for water governance,
Oral:
Abstract

Introduction

. While prior studies have identified general conditions needed for efficient water markets, the context-dependency of water markets make specific applications difficult. Grafton et al. (2011) develop a comprehensive and integrated framework to assess and compare water markets, which identifies which criteria underpin these markets, and the features of these markets that may require further development.

To our knowledge, no study has analysed the replicability of market intermediaries to accelerate market maturation, nor were differences between market intermediaries regarding their drivers, evolution and objectives identified. This research seeks to fill this gap.

Methods

Due to the context-dependability of our research questions, a predominantly qualitative approach is chosen (Marshall and Rossman, 2006). Quantitative information complements qualitative research methods, i.e. semi-structured interviews and literature review, to outline factual developments in the water markets and set the scene for an inductive analysis (Hesse-Biber and Leavy, 2010). Multiple data collection methods are drawn upon to triangulate the findings and thus substantiate the inductively generated hypothesis (Eisenhardt, 2002).

Case studies in California (USA), Colorado (USA), Victoria (Australia) and Chile, were selected (Patton, 1990) based on the longevity and functioning of the water market as a common characteristic and the existence of different types of market intermediaries and contexts as 'situational uniqueness' (Stake, 2005:ix-x). Experts with direct involvement in the initiation of water markets or engagements with market intermediaries were interviewed. Key representatives involved in the creation and participation of water markets, such as regulatory bodies, government and a diverse range of (potential) market participants (water supply companies, National Farmers Union and new market entrants) are selected. To meet ethical norms, all interviewees were briefed on their involvement in this research project and gave their consent for the public use of their comments by signing a consent form.

Water market trading data for California and Colorado were taken from the Water Strategist, for Victoria from the Victorian Water Register, while data for England were requested from the Environment Agency. Trade data from market intermediaries were taken from the respective homepage or were requested. Data from the Water Strategist and the EA, while comprehensive, may be incomplete. Trading data for Chile was collected from the DGA Public Water Market Registry (RPA).

Results

Ten criteria are identified to be crucial in influencing the emergence or creation and success of market intermediaries. These criteria, are homogeneity of water rights, political ideology, institutional environment, hydraulic infrastructure, distance, size, frequency and time frame of transfers and cultural attitude.

The most active water markets deal with homogeneous shares of irrigation districts and ditch companies, as trades within one hydraulic system decrease potential third party effects, allowing for more flexible, less bureaucratic procedures and lower transaction costs. Political ideology influences market intermediaries by deciding on the type of market framework and degree of government involvement.

While the increasing complexity of the institutional environment results in rising demand for intermediaries, the complexity itself can inhibit, particularly privately owned, intermediaries from entering and participating in the market. Understanding the objectives of the market intermediary, beyond bringing buyers and sellers together, is crucial as the end often justifies the means. Not only does the degree of infrastructure influence the homogeneity of water rights, it also influences the scope of trade and opportunities for different types of intermediaries. Technically speaking, the distance of transfers should not play a role as long as conveyance facilities exist for which traders are willing to pay for. The choice of a market intermediary is transaction cost-dependent, for both, the trader and the owner of water rights. The frequency of transfers also affects transaction costs, with transfers generally generating income for intermediaries. While political ideology impacts market intermediaries from top-down, the cultural attitude is influential from bottom-up. A fine line needs to be drawn between acceptance of privatization of water, i.e. profit-making by treating and transporting water, and the marketing of water.

Conclusions

Despite the differing context of the case studies analysed, it was possible to extrapolate ten generic criteria, which influence the emergence or creation and success of market intermediaries. Two nonexclusive dynamics of influences could be distinguished. Firstly, water market-related criteria, such as hydraulic infrastructure, frequency and time frame of transfers, exert overall very strong influences on most types of market intermediaries, indicating their overarching importance. Secondly, criteria representing a variety of institutional levels, namely homogeneity of water rights, political ideology cultural attitudes, distance, time frame and frequency of transfers, have strong influences in differentiating between types of market intermediaries.

The findings indicate the relevance choosing a methodological approach in line with New Institutional Economic (e.g. Shah, 2005), which captures the contextual and institutional dynamics by analysing the formal and informal rules of societies as well as interactions of organisations and market participants within these constraints. Eisenhardt, K.M., 1989. Building theories from case study research. Academy of management review, 14(4), 532-550.

Grafton, R. Q., G. Libecap, S. Mcglennonz, C. Landryjj, And B. O'Brien., 2011. An Integrated Assessment of Water Markets: A Cross-Country Comparison. Review of Environmental Economics and Policy, 5 (2): 219Â239. doi:10.1093/reep/rer002

Hesse-Biber, S.N. And Leavy, P.L., 2010. The practice of qualitative research. 2nd edn. Thousand Oaks, Cal.: Sage Publications, Inc.

Marshall, C. And Rossman, G.B., 2006. Designing qualitative research. 4 edn. London, UK: Thousands Oaks: SAGE Publications.

Shah, T., Makin, I. And Sakthivadivel, R., 2005. Limits to leapfrogging: Issues in transposing successful river basin management institutions in the developing world. In: M. SVENDSEN, ed, Irrigation and river basin management: options for governance and institutions. Wallingford: CABI in association with the International Water Management Institute, pp. 31-50.

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