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Resource Management's Act current “first come first served” method of distributing water rights is fast becoming inadequate to handle this increasingly over-allocated factor of production. Water markets or tariffs are one way to achieve allocative efficiency. To establish such markets or tariffs, it is imperative to estimate users’ responses to having, for the first time, to pay for this currently largely unpriced input. This study seeks to provide a viable “starting point” estimate of the response curve to water price tariffs of dairy farmers – NZ’s largest fresh water consumers – using the MPI dairy monitoring dataset. This paper suggests that under the assumptions of inelastic input substitutability, the farms’ supply curves can provide an approximation of the farms’ responses to at-site (irrigation cost inclusive) changes of water costs.


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