Skip to main content
Article
Mechanisms for Addressing Third Party Impacts Resulting from Voluntary Water Transfers
University of Massachusetts, Amherst Working Paper (2003)
  • Vernon L. Smith
  • James J. Murphy, University of Alaska Anchorage
  • Ariel Dinar, World Bank
  • Richard E. Howitt, University of California - Davis
  • Erin Mastrangelo, University of Massachusetts - Amherst
  • Stephen Rassenti
Abstract

This paper uses laboratory experiments to test alternative water market institutions designed to protect third party interests. The institutions tested include taxing mechanisms that raise revenue to compensate affected third parties and a market in which third parties actively participate. The results indicate that there are some important trade-offs in selecting a policy option. Active third party participation in the market is likely to result in free riding that may erode some or all of the efficiency gains, and may introduce volatility into the market. Taxing transfers and compensating third parties offers a promising balance of efficiency, equity and market stability.

Keywords
  • Arbitration,
  • experiments,
  • third party impacts,
  • environmental impacts,
  • water markets
Disciplines
Publication Date
August, 2003
Citation Information
Vernon L. Smith, James J. Murphy, Ariel Dinar, Richard E. Howitt, et al.. "Mechanisms for Addressing Third Party Impacts Resulting from Voluntary Water Transfers" University of Massachusetts, Amherst Working Paper Vol. Vol. 7 (2003)
Available at: http://works.bepress.com/vernon_smith/20/