The spatial distribution and determinants of price preferences for water entitlement trading

It has been suggested that trading permanent water can be affected by spatial influences, such as biophysical factors, regional population growth and neighbourhood interaction. This research extends this spatial analysis to irrigators’ stated price preferences when deciding at which price levels they would start buying or stop selling water entitlements. This research question is related to the concepts of ‘willingness to pay’ (WTP) and ‘willingness to accept’ (WTA). The spatial pattern of WTP and WTA are increasingly considered in agricultural economics, but so far, no study has analysed the spatial pattern of price preferences for water trading. Irrigators’ individual and price preference data were sourced from a survey conducted in 2011 in the southern Murray-Darling Basin. Irrigator locations were spatially referenced and spatial characteristics were linked to the irrigator survey data (n=531). Overall, this analysis confirms the relevance of various spatial influences on water entitlement sales decisions but not so for water entitlement purchases. Thus, irrigators’ value their water differently if they own it compared to if they are going to own it, which may relate to the ‘endowment effect’. The results particularly confirmed the influence of poor resource areas (relating to salinity and water scarcity issues) and irrigators’ location in the southern Murray-Darling Basin (regarding rural areas and the different states). Identifying the spatial distribution and determinants of irrigators’ price preferences for water trading facilitates the identification of high or low value areas, which can be useful when planning for agri-environmental policy programs.