Efficiency Gains from Pre-Investment Resource Queues: Coordinating Investment Under Resource Uncertainty

Abstract

Farmers make investments before knowing how much water they will receive later in the season. The costs of the inefficiently high or low investment that may result can be significant. A spot market that efficiently allocates water once quantity is realized is unlikely to coordinate simultaneous efficient investments earlier in the season. This paper compares pre-established queues to a post-investment-and-resource-realization market in coordinating investment whose productivity depends on having the uncertain resource.