Estimating Water Rights Demand and Supply: Are Non-market Factors Important?

Water rights demand and supply in the upper Maipo river basin (Metropolitan Region of Chile) are estimated for the period July 1998 to June 2003, as well as a reduced form model for the equilibrium water rights price based on supply and demand determinants, as well as characteristics of the participating agents such as the economic sector of each agent and their individual market experience. Results show that the main participants in the market are both agriculture and real estate sectors (developers); agriculture buying 57 % and selling 68 % of transactions. The estimated supply and demand system shows that market forces indeed drive market water right prices. Demand is inelastic to price while supply is highly elastic. Furthermore, supplied and demanded water rights quantities are functions of water right price as well as the economic sector of buyer and sellers, sectoral profits, and geographic location of the water right. Additionally, the agent's previous water rights market-experience is an important determinant of water rights demands and supply. [ABSTRACT FROM AUTHOR]