Monday, November 17, 2008
Economists Research Real-Time Water Rights Market
SANTA FE Economists and a hydrologist are exploring a water market model in which farmers could trade water rights in real-time via computer and see the impact of their actions on the waterway.
Economists from The University of New Mexico and the University of Chicago and a hydrologist from Sandia National Laboratories are testing whether such a market would work in the lab and soon they will try it out for real in the upper Mimbres River basin.
If the model works, a similar water market could be developed for other New Mexico rivers.
The water market model has been developed with the input of about 20 upper Mimbres River farmers in southern New Mexico at the request of New Mexico's state engineer.
A real-time market would allow senior water rights holders on the upper Mimbres River to lease water to other farmers in the basin. The computerized transactions would be visible to anyone as they happen and any impact on the river's flows could be tracked.
If the water market is put in place, participation would be voluntary, according to UNM environmental economics professor David Brookshire.
"This is not at all a bunch of academics going down there and saying this is what should happen," Brookshire said. "This is about what you (farmers) need and want to see happen."
As New Mexico's population grows, meeting the water needs of rivers, irrigators and towns becomes increasingly difficult.
Brookshire wondered if a water market tested through "experimental economics" could help New Mexico's water dilemma.
"There's been the need to move beyond the law of the river to something more flexible," Brookshire said. "I call it the Hertz model of water leasing."
Brookshire invited University of Chicago economist Don Coursey to work on a market model for water.
Experimental economics is a way of testing in a lab the way people might value just about anything and comparing it to what happens in the real world. It's valuable for developing new markets, such as water rights.
According to experimental economics theory, people will generally trade in a fairly predictable manner, even if they've never participated in a stock exchange or any other kind of market.
In 2005, a team led by Brookshire and Coursey began to look at how water might be traded in the Middle Rio Grande, a place where the needs of farmers are rapidly coming up against the needs of New Mexico's largest cities.
Creating a viable, real-time water trading market is complex, perhaps nowhere more so than in New Mexico, where a time-honored tradition of irrigation and seniority is codified in state law. The team had to include those regulations and restrictions in the water market model.
Researchers also included in the market model the ecological impacts of trading water on endangered species. In the Middle Rio Grande, for example, a federal mandate requires some water in the river for the endangered Rio Grande silvery minnow.
Sandia hydrologist Vince Tidwell said the interaction between groundwater pumping, river flows and irrigation are critical to understanding how a water trade would impact water sources and other water users.
"My real interest is in seeing if people trade and move water, are we able to provide that water and would the trade impact other water users," he said.
Tidwell models the worst-case scenarios, such as the impact of water trades when there's a drought.
Coursey said the model also tries to account for an intangible — water's cultural importance. For Native Americans, for example, "water is not just utilitarian. It is something much more spiritual than just water for a crop," he said.
The final stage of developing the water market will attempt a real-world model for the upper Mimbres.
State Engineer John D'Antonio asked the team to develop a real-world water market for the upper Mimbres.
Broadbent said it wasn't easy coaxing farmers to attend some of the early meetings about the Mimbres water market.
"When we first met the guys, some were pretty skeptical," said Broadbent, a Utah native. "As we talked, they seemed more supportive."
Those farmers told the team a water market should be flexible, allowing for trades even in good water years. That's the model the team has worked on lately and will start showing the farmers and the state engineer this month.
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