TY - JOUR
T1 - Understanding irrigator bidding behavior in Australian water markets in response to uncertainty
AU - Zuo, Alec
AU - Brooks, Robert Darren
AU - Wheeler, Sarah Ann
AU - Harris, Edwyna Margaret
AU - Bjornlund, Henning
PY - 2014
Y1 - 2014
N2 - Water markets have been used by Australian irrigators as a way to reduce risk and uncertainty in times of low water allocations and rainfall. However, little is known about how irrigators bidding trading behavior in water markets compares to other markets, nor is it known what role uncertainty and a lack of water in a variable and changing climate plays in influencing behavior. This paper studies irrigator behavior in Victorian water markets over a decade (a time period that included a severe drought). In particular, it studies the evidence for price clustering (when water bids/offers end mostly around particular numbers), a common phenomenon present in other established markets. We found that clustering in bid/offer prices in Victorian water allocation markets was influenced by uncertainty and strategic behavior. Water traders evaluate the costs and benefits of clustering and act according to their risk aversion levels. Water market buyer clustering behavior was mostly explained by increased market uncertainty (in particular, hotter and drier conditions), while seller-clustering behavior is mostly explained by strategic behavioral factors which evaluate the costs and benefits of clustering.
AB - Water markets have been used by Australian irrigators as a way to reduce risk and uncertainty in times of low water allocations and rainfall. However, little is known about how irrigators bidding trading behavior in water markets compares to other markets, nor is it known what role uncertainty and a lack of water in a variable and changing climate plays in influencing behavior. This paper studies irrigator behavior in Victorian water markets over a decade (a time period that included a severe drought). In particular, it studies the evidence for price clustering (when water bids/offers end mostly around particular numbers), a common phenomenon present in other established markets. We found that clustering in bid/offer prices in Victorian water allocation markets was influenced by uncertainty and strategic behavior. Water traders evaluate the costs and benefits of clustering and act according to their risk aversion levels. Water market buyer clustering behavior was mostly explained by increased market uncertainty (in particular, hotter and drier conditions), while seller-clustering behavior is mostly explained by strategic behavioral factors which evaluate the costs and benefits of clustering.
U2 - 10.3390/w6113457
DO - 10.3390/w6113457
M3 - Article
VL - 6
SP - 3457
EP - 3477
JO - Water
JF - Water
SN - 2073-4441
IS - 11
ER -