If you gathered a bunch of farmers in a room and gave them a set of rules for trading water rights in real time, like a stock exchange, could they reach a satisfactory deal?

Economists from The University of New Mexico and the University of Chicago and a hydrologist from Sandia National Laboratories are testing the theory in the lab. Soon, they will try it out for real in the upper Mimbres River basin.

If it works, a similar water market could be developed for other New Mexico rivers, a potential revolution in how water rights are handled in the state.

The water market model has been developed with the input of about 20 upper Mimbres River farmers in Southern New Mexico and at the request of New Mexico's state engineer. Essentially, a real-time market would allow senior water rights holders on the upper Mimbres River to lease water to other farmers in the basin; the computerized transactions would be visible to anyone as they happen, and impacts on the river's flows could be tracked.

If the water market is put in place, participation would be voluntary, according to UNM environmental economics professor David Brookshire. "This is not at all a bunch of academics going down there and saying this is what should happen," Brookshire said. "This is about what you (as farmers) need and want to see happen."

As New Mexico's population grows, meeting the water needs of rivers, irrigators and towns becomes increasingly difficult. Brookshire wondered if a water market tested through "experimental economics" could help New Mexico's water dilemma. "There's been the need to move beyond the law of the river to something more flexible," Brookshire said. "I call it the Hertz model of water leasing."

Brookshire invited University of Chicago economist Don Coursey to work on a market model for water. It is the first time such a real-time trading water market, coupled with a hydrology model, has been attempted, as far as Coursey and Brookshire know.

Coursey has conducted experimental economics labs for three decades. He trained under Nobel laureate Vernon Smith, considered the father of the field.

In economics, everything has a value. The worth of any particular thing — a basket of strawberries, a kilowatt of electricity, a gallon of water — will vary for each person. At some point, there's a value at which a buyer and a seller, or a lessor and lessee, will make a deal.

Values can even be established for intangibles — like a pretty view or clean air or a species on the edge of extinction — things some people believe are priceless.

Experimental economics is a way of testing in a lab the way people might value, well, just about anything and comparing it to what happens in the real world. It's also valuable for developing new markets, such as how the trading of airline landing slots could occur, or water rights.

Experimental economics says, in general, people will trade in a fairly predictable manner, even if they've never participated in a stock exchange or any other kind of market.

A team led by Brookshire and Coursey started out in 2005 looking at how water might be traded in the Middle Rio Grande, a place where the needs of farmers are rapidly coming up against the needs of New Mexico's largest cities. Funding for the project came from the National Science Foundation, a University of Arizona research group called SAHRA and the U.S. Geological Survey.

Creating a viable, real-time water trading market is complex, perhaps nowhere more so than in New Mexico, where a time-honored tradition of irrigation and seniority is codified in state law. The team had to include those regulations and restrictions in the water market model.

Researchers included in the market model the ecological impacts of trading water on endangered species. In the Middle Rio Grande, for example, a federal mandate requires some water in the river for the endangered Rio Grande silvery minnow.

The model is tied to hydrology. Sandia hydrologist Vince Tidwell said the interaction between groundwater pumping, river flows and irrigation are critical to understanding how a water trade would impact water sources and other water users. "My real interest is in seeing if people trade and move water (electronically), are we able to provide that water and would the trade impact other water users," he said.

Tidwell models the worst-case scenarios, such as the impact of water trades in different parts of a river when there's a drought.

Coursey said the model tries to account for an intangible — water's cultural importance. For Native Americans and others, "water is not just utilitarian. It is something much more spiritual than just water for a crop," he said.

The final stage of developing the water market will take lessons learned and attempt a real-world model for the upper Mimbres.

Craig Broadbent, a UNM economics graduate student, explained how the water market model was tested for the Middle Rio Grande.

The team recruited 165 UNM students, dividing them up into groups of 15. In each group, one student represented Albuquerque and one represented environmental interests for in-stream flows. The other 13 acted as farmers growing long-term capital investment crops such as pecans or seasonal cash crops such as alfalfa on 10 acres. Each student was shown the computer market model and given instructions on how much water they need. They earned real cash based on the outcome of their trading for water rights. "The students decide how much water they need for their crops (or customers)," Broadbent said. "They decide if they need to buy more water or will have extra water to lease.

"They know everything about themselves and can see the rolling ticker tape that indicates the kind of trades going on," Broadbent said. "They see all the transactions made — such as the price, amount of water traded, who's making it and to whom — but not the original position of other participants (amount of acreage, amount of water)."

The model also allows the traders and researchers to see the impact of each trade on the river's hydrology at different points.

State Engineer John D'Antonio found out about the team's work on the water market and asked them to develop a real-world water market for the upper Mimbres.

Broadbent said it wasn't easy coaxing farmers to attend some of the early meetings about the Mimbres water market. "When we first met the guys, some were pretty skeptical," said Broadbent, a Utah native. "As we talked, they seemed more supportive."

Those farmers told the team a water market should be flexible, allowing for trades even in good water years. That's the model the team has worked on lately and will start showing the farmers and the state engineer this month.

Contact Staci Matlock at 470-9843 or smatlock@sfnewmexican.com.