Putting a Price on Water: Would Price Disclosure Increase Water Market Participation?

By Karie Boone, Center for Sustaining Agriculture and Natural Resources, Washington State University

Diagram with a river in a valley and two hands in a handshake superimposed
Water markets are one of several potential climate change adaptation strategies being studied to increase water availability to meet the needs of multiple uses. Image: Sonia A. Hall

Water markets are one of several potential climate change adaptation strategies being studied to increase water availability to meet the needs of multiple uses (farming, fish and new development). On AgClimate.net we have previously explored water markets and a number of barriers to more active participation. This article focuses on price disclosure barriers, or the challenges posed by the fact that it is not always easy for those who have water rights and those who are seeking to lease or buy water to know what a fair price is. Potential water market participants mostly do not want others to know if they are interested in buying, leasing or selling water, or the prices at which water transactions are made. At the same time, it is difficult for water right holders and farmers in irrigation districts to know what a “fair” price (that is, the price that most buyers would expect to pay and sellers would expect to receive) is for a given water right.

As part of a multi-institutional project focusing on improving the information available to manage water effectively, Washington State University researchers surveyed agricultural water users across the Methow, Walla Walla, Okanagan, and Yakima watersheds in the state of Washington. Participants were asked to reflect on a number of issues relating to price disclosure. Their answers revealed a tension between the competing desires for anonymity and wanting to know more about purchase price, with substantial regional variation in support of price disclosure. Two thirds of respondents said it was “difficult” or “very difficult” to know a fair price for a water right. More than a third (37%) indicated that a price disclosure policy would make it more likely that they would participate in a water market transaction.

When asked if they would support state-mandated price disclosure for water market transactions (like real estate transactions require), 60% of respondents said they would vote yes in a hypothetical county referendum mandating price disclosure. Support was higher in Methow (89% yes) and Walla Walla (65% yes). In Yakima, 60% said they would vote yes, but only a minority supported it in Okanogan (36% yes).

Landscape of dry fields, with center pivot in the forefront
This pivot sprinkler would typically be operating in spring, summer and fall. Because of water supply shortages, fields were fallow. Photo: WA Dept. of Ecology.

In Washington State it is mandatory for water banks, that focuses on providing water rights to homes that need to “mitigate” groundwater use, to report the prices at which water is sold. Outside of water banks, there is no price disclosure required for water transactions. Looking forward, there are multiple different ways to navigate the tension between transaction-related anonymity and thirst for information. This status quo could be maintained, or rules could be changed in ways that tilt in favor of one value or the other (for example, price disclosure could be required when water rights are sold). Another possibility, given technological advances, is that automated “computer-aided” water markets could be used to try to increase fairness while maintaining anonymity. As an example, a computer-aided water market could have rules to split the “gains of trade” – meaning that if there is an overlap between a lower price a lessor is willing to receive and a higher amount that a lessee is willing to pay, then the computer system automatically transacts water at a price that is in the middle.

While these questions are not easy to navigate, these types of details are an important part of whether water markets are trusted and used by the public. Researchers working on these technologies can help with that navigation, so that water markets may help support the adaptation of water management for a changing climate.