Abstract
Water transactions from agriculture to industry have become an important means to address water scarcity and improve water economic efficiency. Transaction costs (TCs) are one of the main factors preventing water markets from forming or efficiently operating. To evaluate the level of transactions costs, we set the appropriate transaction modes for cross-sector lever water trading and evaluated the TCs from agriculture to industry in the Heihe River Basin (HRB), an inland basin in northwest China. We found that the ranges of transaction costs per m3 of water ranged from 0.06 to 1.10 yuan, and the ratios of TCs to transaction prices ranged from 4.11% to 244.44%. The transaction scale should be more than 15,267 m3 or 29,888 m3 when the TC is at the lower or upper limit in the study area. When the transaction scales are set correctly, the range of the transaction costs will be in an acceptable range, and the proportion of TCs to transaction price will not exceed the 8% limit of the California Water Bank, which was employed as a comparison. The key restrictive factor of water trading in HRB may be the low transaction scale, followed by the high water TCs. The effects of improving water use efficiency in cross-sector trading could not neutralize the restrictions caused by the negative effects of small water demand transaction scales for undeveloped secondary industries in HRB. However, considering the industrial structure and development trends of the regional economy, the future driving force of water transactions across sectors likely lies in tertiary industries in HRB.
Highlights
Water scarcity is an issue worldwide, affecting more than 40% of the global population—a proportion that is projected to increase [1]
We aimed to investigate whether the Transaction costs (TCs) are high enough to impede water rights trading or whether there is a lack of appropriate transaction modes
Given that the early inputs of the water rights transaction system in Zhangye City have been completed during the implementation periods of the above two programs, which means that institution costs (TC1 ) have all been thoroughly accounted for by the Chinese government, we evaluated only the last four types of costs (TC2 –TC5 ), without considering institution costs
Summary
Water scarcity is an issue worldwide, affecting more than 40% of the global population—a proportion that is projected to increase [1]. Because of the difficulties associated with developing a new water supply through engineering/technological means, water demand management measures, such as developing water markets for transactions, have often become key solutions to water availability issues [3,4,5]. This indicates that one major current problem for water resources worldwide is water management in the social system, rather than water availability in the natural water system. Water transactions conducted on a voluntary basis in water markets rather than as enforced by laws and regulations have become a primary means to reconfigure water sources in most developed countries [7]
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