Economics Professor Vernon Smith is receiving almost $1 million over the next five years to develop new ways of preserving and sharing scarce water resources.

The National Science Foundation awarded a total of $17.8 million to various universities as part of the Human Dimensions of Global Change grant. Smith's project falls under the grant.

"We were the only social science department to get part of the grant," Smith said.

The project will create computer software to simulate an electronic market for trading water rights, he said. The working name for the project is simply, "Smart Electronic Models for Water."

The research is critical to areas like the Southwest, especially in California, where periodic droughts devastate entire crops.

Creating a market for water will allow crops that need the water the most to get it, Smith said.

The structure of the experiment involves creating a network of canals and rivers where water is available, then allocating water rights to farmers who can buy and sell their rights on a monthly basis.

This will create an active, spot-trading market as well as a futures market, Smith said.

The experiment will use human subjects who get paid for participating, he said.

"UA undergraduates will be asked to come in and act as farmers. They will buy and sell water rights trying to ensure a healthy crop goes to market," Smith said.

Students will be paid as much money as they earn in the simulation. In similar experiments, students have earned anywhere from a few dollars to a few hundred dollars, he said.

The first prototype model will be completed this fall and will be set up for California, where the research will first be put into use.

Smith envisions the computer simulation "not just as a development tool, but also as a training tool for the farmers who will use it."

Smith said that although California will be the first state to test the system, the models will be expanded to include Arizona, New Mexico and Texas.

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