We examine potential third-party effects arising from trading water from one region (rural) to another (urban). Using labor, water and heterogeneous land, rural agents produce a traded agricultural good and nontraded service good. Absent job market frictions, increased water trading improves per capita regional welfare, but aggregate service income can increase (decrease) while individual land rents decrease (increase). If labor experiences job market frictions, water trading can trigger socially inefficient land fallowing, and a decrease in per capita regional welfare. Simulation results confirm the no-job-market-friction model predictions. Copyright Copyright 2008 Agricultural and Applied Economics Association.
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Volume (Year): 90 (2008) Issue (Month): 4 (November) Pages: 902-917 Download reference. The following formats are available: HTML
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