Do neighbors influence irrigators’ permanent water selling decisions in Australia?

There has been increasing emphasis by scholars in trying to understand how neighbors influence farmers’ decision-making. In Australia, historically there has always been strong anecdotal evidence of peer pressure on irrigators’ decisions to not sell permanent water entitlements. This local pressure increased with the advent of the federal government into the Murray-Darling Basin water market to purchase permanent water for the environment from voluntary sellers from 2008 onwards. Selling permanent water entitlements is associated with perceptions about rural community decline. This article formally tests whether a neighborhood effect can be detected in permanent water entitlement selling decisions, using farm survey data across a number of years from the southern Murray-Darling Basin (n = 1462). We hypothesize that the more that an irrigator's neighbors sell permanant water in a given area, the more likely that an individual irrigator will also sell permanant water given a decrease in social pressure. Irrigators’ locations were geocoded and locational characteristics (regional socio-economic characteristics, land and water quality) were linked to the survey data covering farm, farmer and water trade characteristics. There was significant evidence of a farmer neighborhood effect, with higher likelihood of permanent water sales occurring in areas where more neighbors had sold permanent water, holding other locational and spatial influences constant.