This dissertation contributes to our knowledge about water markets by analyzing the factors that explain market transactions of water rights when there is also a spot market for water volumes. I hypothesize that risk heterogeneity among farmers can explain those transactions. To test the aforementioned hypothesis I model farmers’ decisions on investment in water rights each season under the assumptions that they face output risk and that uncertainty is generated by future water availability and price. The first order condition to this problem, which is represented by the Euler Equation, indicates that the current period reservation value of a water right depends on the current value of the amount of water accorded to water rights in the spot market….
Author: Cristi, Oscar Enrique
Source: University of Maryland
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