Applied Economics Teaching Resources

an AAEA Journal

Agricultural and Applied Economics Association

Teaching and Educational Methods

Simulating a Water Market: An In-Class Activity to Compare Market Efficiency under Various Institutions and Relative Advantages of Agents

Kyle D. Wilson(a)
(a)Pacific Northwest National Laboratory

JEL Codes: A22, Q25, D47
Keywords: Active learning, classroom game, economics education, water economics, water markets

Publish Date: August 6, 2023

View Full Article (PDF)


Water markets are a public policy tool that can help to allocate water to its highest value uses, creating more efficient outcomes. This paper presents a classroom simulation that exposes students to some of the practical ramifications of establishing a water market and the outcomes that result. The activity has students role-playing as various businesses that require water for operation and assigns initial water endowments to some of the agents. Students must buy and sell water on a market and attempt to maximize their individual welfare. The students gain a deeper understanding of the welfare gains from water markets and learn how a lack of information and negotiating power can create inefficiency.

About the Authors: Kyle D. Wilson is a Senior Associate Economist with the Pacific Northwest National Laboratory (Corresponding Email: Acknowledgements: There are no conflicts of interest regarding this work. The author would like to thank the anonymous referees for their helpful comments and suggestions.

Copyright is governed under Creative Commons CC BY-NC-SA


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