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Water 2014, 6(3), 723-744; doi:10.3390/w6030723

Water Trading: Locational Water Rights, Economic Efficiency, and Third-Party Effect

1
Department of Industrial Economics, Tamkang University, Tamsui District, New Taipei City 251, Taiwan
2
Institute of Economics, Academia Sinica, Nankang, Taipei City 115, Taiwan
3
Department of Industrial Economics, Tamkang University, Tamsui District, New Taipei City 251, Taiwan
*
Author to whom correspondence should be addressed.
Received: 9 November 2013 / Revised: 3 March 2014 / Accepted: 17 March 2014 / Published: 24 March 2014
(This article belongs to the Special Issue Water Policy, Productivity and Economic Efficiency)
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Abstract

Rivers flow downstream and unidirectionally. However, this fact has not yet been utilized in the institutional design for water trading. By utilizing this characteristic, we first designed a water trading system of “locational water rights.” This new system is able to mitigate the return flow-related and instream flow-related third-party effects of volumetric reliability from water transfers. We provided mathematical proof of its economic efficiency. We then applied this water trading system to the case of the Choushui River basin in Taiwan. In this area, agriculture is highly developed while domestic and industrial water demands have increased rapidly. Using an agent-based model simulation, we estimated the potential economic benefits of implementing the system of locational water rights in the Choushui River basin. View Full-Text
Keywords: water market; locational water right; economic efficiency; third-party effect; return flows water market; locational water right; economic efficiency; third-party effect; return flows
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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MDPI and ACS Style

Hung, M.-F.; Shaw, D.; Chie, B.-T. Water Trading: Locational Water Rights, Economic Efficiency, and Third-Party Effect. Water 2014, 6, 723-744.

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