The value of agricultural water rights in agricultural properties in the path of development

This paper estimates the value of water rights in a rapidly urbanizing semi-arid area: Phoenix, Arizona. To do this we use hedonic pricing to explore the impact of water rights on property values in 151 agricultural land transactions that occurred between 2001 and 2005. We test two main hypotheses: (1) that the marginal willingness to pay for water rights is higher in more developed urbanizing areas than in less developed rural areas, and (2) that the marginal willingness to pay for water rights in urban areas is increasing in the value of developed land. We find that the marginal willingness to pay for water rights is highest among properties in urbanized or urbanizing areas where a significant proportion of the land has already been developed. Additionally, we find that the marginal willingness to pay for agricultural water rights is greatest in cities where developed land is most valuable. •We estimated the value of water rights in the Phoenix Active Management Area.•The marginal willingness to pay for water rights is highest in urbanized cities.•The value of water rights is higher for areas that are surrounded by more developed land.