Water Market Responses and Adaptation to Drought in the Western United States
Date:
Poster: American Geophysical Union (AGU) Fall Meeting, San Francisco, CA
Project: Water markets and drought adaptation in the western U.S.
Luo, Y., Zheng, J., Lisk, M. D., Fisher-Vanden, K., Olmstead, S. M., and Srikrishnan, V. 2026. “Water Market Responses and Adaptation to Drought in the Western United States.” American Geophysical Union (AGU) Fall Meeting. (Poster)
Abstract
Water markets are intended to reallocate scarce water toward higher-value uses during drought and are often viewed as a potential adaptation mechanism because they can shift water across users, sectors, and locations during periods of scarcity. However, whether voluntary transfers respond to hydrologic stress as theory predicts remains an open empirical question, particularly because legal restrictions, transaction costs, conveyance limitations, and regulatory and administrative barriers may prevent markets from adjusting efficiently when scarcity is most severe.
This study examines water market activity across twelve western U.S. states using transaction records linked with drought, hydrologic, climatic, demographic, and agricultural conditions. It evaluates how market participation, transfer activity, prices, and the overall value of transactions change under varying levels of water scarcity. The analysis also considers whether market responses differ across transaction types and whether adjustment occurs gradually or only after drought conditions become sufficiently severe.
The empirical framework combines complementary econometric approaches to estimate average relationships, identify nonlinear responses, and distinguish the underlying roles of water supply and demand, with careful uncertainty quantification. This approach provides a more complete assessment of whether observed market outcomes reflect effective adaptation to scarcity or persistent regulatory, administrative, and physical constraints. By integrating hydrologic conditions with observed water transactions, this study contributes to understanding how drought risk is translated into market responses and economic adaptation.
Citation
Luo, Y., Zheng, J., Lisk, M. D., Fisher-Vanden, K., Olmstead, S. M., and Srikrishnan, V. (2026). Water Market Responses and Adaptation to Drought in the Western United States. Poster presented at AGU26, San Francisco, CA, 7–11 December 2026.