Water Right Prices in the Rio Grande: Analysis and Policy Implications

Abstract

Climate change, water supply limits, growing environmental values of water and worldwide population growth continue to raise the scarcity of water. These challenges have intensified the transfer of water from farms to cities. Water right transfers are an important international institution to stretch water supplies. In North America's Rio Grande Basin water right transfers are an especially important institution for meeting the growth in urban demands. Despite the importance of water right transfers as a social institution, sellers face uncertainty on the asking price, while buyers face similar uncertainty on the offer price. Weak information on water right prices stymies water transfers while limiting the future resilience of water transfers to address climate change and the need to cope with change in water supplies and demands. This paper describes the development of a database on water right prices using observed transactions from 1980 to 2007. An empirical model was developed using the data to identify important factors influencing those prices. Five water right price predictors were found to be significant: total regional urban water use, priority date of the water right, quantity of water rights offered for sale, regional reservoir storage volume, and regional farm income. Depending on the future status of food scarcity and urban water conservation programmes, water right prices in the basin could grow from zero to 27% over 2010–2020.