7 Feb 2014

Now THAT's a market!

(via PB) Buena Vista Water Storage District received "sky high" bids for its 12,000af of water.

I took bid data (thanks Lois!) and made this chart of supply and demand*

As you can see, demand was STRONG (there were bids for 63,000 af but only 12,000 af on offer).

This auction is useful for two reasons: (1) It shows that farmers are willing to pay a lot when water is scarce (no need to go to DC to take water from the environment) and (2) markets for water can work, when they are allowed. I hope that the sale closes and everyone gets water/paid.

If I were running this auction, I would allow multiple bids (so nobody was surprised at price or who won) AND set a single price based on the highest rejected bid (here, $1,100/af), which would reduce "shading" by buyers hoping to pay less for water. This (discriminatory) auction tends to lead to regret by buyers who bid more than $1,100 (more here [PDF]).

Bottom Line: Let markets allocate (economic) water when California is in shortage. you want water to go to its best uses (drought or not).

* Bids still need to be confirmed as eligible. That fact does not matter if we take thee as serious, which they probably are. The bid indicate where demand sits.