Modelling water markets under uncertain water supply

Journal re
European Review of Agricultural Economics
  • Volumen: 32
  • Número: 2
  • Fecha: 01 June 2005
  • Páginas: 119-142
  • ISSN: 01651587 14643618
  • Source Type: Journal
  • DOI: 10.1093/eurrag/jbi006
  • Document Type: Review
This paper looks at the risk dimension of water markets under uncertain water supply. We model market participants' decisions under uncertainty and evaluate gains from trade under two different market arrangements. These differ in the confidence that irrigators can place in the water market-clearing processes, and their chances of pursuing tactical responses to deal with supply uncertainty. A two-stage stochastic model, that simulates both market arrangements, is applied to an irrigation district of Southern Spain. We show that centralised water markets, perhaps brokered by the water authority, lead to more efficient allocation and resource use than decentralised markets. The paper highlights the importance of providing a reliable market setting. © Oxford University Press and Foundation for the European Review of Agricultural Economics 2005; all rights reserved.

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