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Governments often use voluntary agreements to encourage landholders to adopt environmental practices, such as excluding stock from grazing riverbanks. In Victoria, Australia, government agencies subsidize the adoption of these projects, while landholders are required to continue maintaining stock exclusion indefinitely. In the absence of further financial or legal enforcement, landholder compliance depends on the motivation and decision-making of individual landholders. Social beliefs about the responsibility of landholders to improve the condition of degraded riverine ecosystems, known as social norms, influence farmers to adopt new environmental practices. The influence of social norms on behaviour weakens when people perceived themselves to be constrained. From late 1996 to mid-2010 landholders in Victoria endured more than ten years of drought that has reduced productivity, and income. Drought conditions may influence whether landholders continue to exclude stock over the long-term, despite holding positive social norms. However, behaviour is influenced by perceptions of constraint; landholder perceptions may not reflect drought severity. Perceived drought affectedness may also be related to the amount of income obtained from farm activities. This study examined the relationship between social factors, (including injunctive and descriptive social norms, and symbolic and instrumental social beliefs, perceived drought affectedness, actual drought severity), and the percentage of overall income that landholders obtain from farm activities. A social survey, and assessment of river restoration projects, was conducted with 93 landholders in rural Victoria, Australia. We found that landholders who continue to graze riverbanks hold weaker social norms about excluding stock in drought conditions. Grazing behaviour was explained by social norms, and perceived drought affectedness together. Perceived drought affectedness was best explained by actual drought severity, but also by the amount of income obtained from farming activities, rather than either factor alone. Policy makers should consider using drought relief funding to subsidize the purchase of additional stock feed during droughts to encourage farmers to continue environmental stock exclusion, particularly when farmers rely on farm activities for most of their income.

Environmental policy is often implemented using market instruments. In some cases, including carbon taxing, the links between financial products and the environmental objectives, are transparent. In other cases, including water markets, the links are less transparent. In Australia's Murray–Darling Basin (MDB), financial water products are known as 'entitlements', and are similar to traditional financial products, such as shares. The Australian water market includes 'Low Security' entitlements, which are similar to 'sub-prime' mortgage bonds because they are unlikely to yield an amount equal to their financial worth. Nearly half the water purchased under the Murray–Darling Basin Plan for environmental purposes is 'Low Security'. We suggest that the current portfolio of water held by the Australian Government for environmental purposes reflects the mortgage market in the lead-up to the global financial crisis. Banks assumed that the future value of the mortgage market would reflect past trends. Similarly, it is assumed that the future value of water products will reflect past trends, without considering climate change. Historic records of allocations to 'Low Security' entitlements in the MDB suggest that, in the context of climate change, the Basin Plan water portfolio may fall short of the target annual average yield of 2075 GL by 511 GL. We recommend adopting finance sector methods including 'hedging' 'Low Security' entitlements by purchasing an additional 322–2755 GL of 'Low Security', or 160–511 GL of 'High Security' entitlements. Securing reliable environmental water is a global problem. Finance economics present opportunities for increasing the reliability of environmental flows.

AbstractEnvironmental policy is often implemented using market instruments. In some cases, including carbon taxing, the links between financial products and the environmental objectives, are transparent. In other cases, including water markets, the links are less transparent. In Australia's Murray–Darling Basin (MDB), financial water products are known as 'entitlements', and are similar to traditional financial products, such as shares. The Australian water market includes 'Low Security' entitlements, which are similar to 'sub-prime' mortgage bonds because they are unlikely to yield an amount equal to their financial worth. Nearly half the water purchased under the Murray–Darling Basin Plan for environmental purposes is 'Low Security'. We suggest that the current portfolio of water held by the Australian Government for environmental purposes reflects the mortgage market in the lead-up to the global financial crisis. Banks assumed that the future value of the mortgage market would reflect past trends. Similarly, it is assumed that the future value of water products will reflect past trends, without considering climate change. Historic records of allocations to 'Low Security' entitlements in the MDB suggest that, in the context of climate change, the Basin Plan water portfolio may fall short of the target annual average yield of 2075 GL by 511 GL. We recommend adopting finance sector methods including 'hedging' 'Low Security' entitlements by purchasing an additional 322–2755 GL of 'Low Security', or 160–511 GL of 'High Security' entitlements. Securing reliable environmental water is a global problem. Finance economics present opportunities for increasing the reliability of environmental flows.

Environmental policy is often implemented using market instruments. In some cases, including carbon taxing, the links between financial products and the environmental objectives, are transparent. In other cases, including water markets, the links are less transparent. In Australia's Murray–Darling Basin (MDB), financial water products are known as 'entitlements', and are similar to traditional financial products, such as shares. The Australian water market includes 'Low Security' entitlements, which are similar to 'sub-prime' mortgage bonds because they are unlikely to yield an amount equal to their financial worth. Nearly half the water purchased under the Murray–Darling Basin Plan for environmental purposes is 'Low Security'. We suggest that the current portfolio of water held by the Australian Government for environmental purposes reflects the mortgage market in the lead-up to the global financial crisis. Banks assumed that the future value of the mortgage market would reflect past trends. Similarly, it is assumed that the future value of water products will reflect past trends, without considering climate change. Historic records of allocations to 'Low Security' entitlements in the MDB suggest that, in the context of climate change, the Basin Plan water portfolio may fall short of the target annual average yield of 2075 GL by 511 GL. We recommend adopting finance sector methods including 'hedging' 'Low Security' entitlements by purchasing an additional 322–2755 GL of 'Low Security', or 160–511 GL of 'High Security' entitlements. Securing reliable environmental water is a global problem. Finance economics present opportunities for increasing the reliability of environmental flows.