Technical Completion Report 356

ANALYSIS OF WATER RIGHTS PRICES IN NEW MEXICO'S LOWER RIO GRANDE BASIN

AUTHORS:
Leeann DeMouche, Extension Plant Sciences Department; Shawn Landfair, Graduate Research Assistant; and Frank A. Ward, Department of Agricultural Economics and Agricultural Business; College of Agricultural, Consumer and Environmental Sciences, New Mexico State University

November 2010

ABSTRACT

The transfer of water rights is an important institution used to stretch available water supplies to meet growing water demands. In the Lower Rio Grande Basin (LRGB), it is used to support sustained population and economic growth. Potential sellers are unsure of what price to charge for water rights, while buyers are unsure of what price to pay. This lack of information on water right prices creates an uncertain and unpredictable market, which jeopardizes the future of water rights to meet growing demands. Improved understanding of the economic forces influencing water rights prices will help buyers and sellers, adding vital information to support continued economic development of the region. Starting in the LRGB, this project has assembled actual verified water rights market data into a database that can be used to characterize the price of water rights. The database includes data from 1980 to 2007. The database and a model were established to explain what factors support a better understanding of the economic and hydrologic forces affecting the demand, supply, and price of water rights. Many independent variables were considered for the model as predictor for water right prices. The five final variables that were found to be selected as the best predictors were 1) total water consumption by the City of Las Cruces, 2) priority year of the water rights, 3) acre-feet sold, 4) reservoir levels at Elephant Butte, and 5) regional farm income. The model was then used to forecast a baseline forecast based on average recent values of all predictors along with three additional forecasted scenarios for forecasted water right prices for the years 2010- 2020. Additional scenarios included a forecast based on an altered priority (1959) to a more senior priority (1890), a forecast based on an altered quantity of rights offered to the market, a forecast based on altering both the quantity of right and the priority year.

Keywords: market price modeling, water rights, Lower Rio Grande Basin (LRGB)


Technical Report 356 in pdf format


Hardcopy or CD of report available from: New Mexico Water Resources Research Institute, NMSU, Box 30001, MSC 3167, Las Cruces, NM 88003 http://wrri.nmsu.edu/publish/order.html