Abstract
The efficiency of two marketable water rights systems in a lentic (lakelike) structure is assessed quantitatively for a case study based on hypothetical irrigation water use. Water rights are simulated on the bases of (1) the expected values of water rights to the users and (2) perfect foresight on the parts of users, and the economic outcomes of these markets are evaluated from both ex ante and ex post perspectives. The market outcomes are compared to the optimal (efficient) scheme and to two alternative nonmarket policies. Distributional aspects of the markets are examined on the basis of individual payoff. Simulation results show that higher efficiency is obtained for the two market systems than for the nonmarket policies and that the market systems recoup about 95% of the economic value of the optimal distribution. The results suggest that most of the 5% efficiency loss should be attributed to the design of the market system itself (i.e., the restrictions imposed by the definition of the rights and/or the water rights allocation policy), rather than the users' inability to predict future events.
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