Weber, Thomas A.Tomkins, Claire D.2013-07-152013-07-152013-07-15201010.1007/s11149-009-9107-2https://infoscience.epfl.ch/handle/20.500.14299/93315Temporary water transfers, as achievable under option contracts, capture gains from trade that would go unrealized if only permanent transfers of water rights were possible. This paper develops a bilateral option contracting model for water which includes the possibility of conveyance losses and random delivery. Seller-optimal and socially optimal option contracts are characterized in terms of relevant base and strike prices, as well as contract volumes, from an ex-ante and an ex-post point of view. Lastly, welfare gains are estimated, and actual contract prices in California are compared to model-predicted prices.Bilateral contractingCapacity-reservation contractsOption pricingReal optionsWater resourcestext::journal::journal article::research article