Water Leasing: Evaluating Temporary Water Rights Transfers in New Mexico Through Experimental Methods

Rapid population growth coupled with stable or decreasing water supplies has further stressed already over-allocated water resources in the western United States. In this article, we consider the issues that lead to the further consideration of a water market. Specifically, we consider water markets that allow for the temporary transfer (lease) of a water right as one possible mechanism that could provide flexibility for water managers to fulfill water demands in fully or over-allocated watersheds. Using the Middle Rio Grande Basin located in central New Mexico as a backdrop, we develop a prototype coupled model that incorporates natural, physical, and engineering dynamics with an economic trading model where a variety of water users in the basin are represented. We explore the robustness of this prototype water leasing market and its ability to provide flexibility in water management. The empirical testing of the coupled model satisfies three necessary conditions: (1) efficient prices; (2) multiple transactions between user groups; and (3) minimal impact upon the natural, physical, and engineering system, as measured by water movement resulting from trading. Finally, we discuss how this trading structure might relate to a larger-scale application in the Middle Rio Grande Basin.