Water Markets, Drought Adaptation, and Economic Welfare in the Western U.S.
Water markets can support drought adaptation by reallocating scarce water across users, sectors, and locations, but institutional and physical barriers may limit their effectiveness. This project examines water markets across twelve western U.S. states by combining empirical analysis of transaction records with economic simulations of agriculture-to-urban water transfers. Transactions are linked to drought, hydrologic, climatic, demographic, and agricultural conditions to evaluate how market participation, transfer activity, prices, and transaction values respond to water scarcity. A complementary simulation framework integrates water rights, water use, and demand relationships to estimate potential welfare gains and their distribution across regions and sectors under alternative trading and water availability scenarios. Sensitivity analysis assesses how uncertainty in data and behavioral parameters influences these estimates. Together, these approaches examine whether markets respond to drought as expected, who benefits or bears costs, and how market design and trading barriers shape the potential of water trading as an adaptation strategy.