Transfer Restrictions and Misallocations of Irrigation Water

The hypothesis of the study is that allowing intercompany transfers of irrigation water would significantly increase the marginal value product of water. Regression analysis was used to explain a time series of rental prices for an area in Utah where four companies freely exchanged water after a long period during which only intracompany transfers were permitted. Water delivered per irrigated acre and type of transfer policy in use were the statistically significant variables and explained 89 percent of the variance in rental price. Covariance analysis indicated that the greater flexibility in transfer increased the real price of water per acre‐foot by $1.84.