Estimating the Benefits to Strengthening Water Markets

Estimating the Benefits to Strengthening Water Markets
Christopher Knittel, George P. Shultz Professor, Sloan School of Management

Period of performance: 

September 2016 to August 2018

Abstract: 

Fresh water is increasingly scarce in many parts of the world, and current resource management regimes may not be adequate for increasing climate uncertainty and rising population pressures. Markets have great potential to improve efficiency of water allocation, reduce conflicts over resources, adapt to climate variability, and build a more resilient economy. In this project, we study the potential for water markets in California, where water markets exist but are underdeveloped. We aim to (1) measure the overall potential economic benefits from strengthening water markets, and to (2) identify and quantify the most important barriers to greater use of water markets in the state. To achieve this, we have compiled a geolinked database that gives the most comprehensive view yet of the water economy in California. We will combine this with novel quasi-experimental estimation methods in a new approach that accounts for real-world frictions and behavior.