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The potential impact of markets for irrigation water in Italy and Spain: a comparison of two study areas

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  • Joan Pujol
  • Meri Raggi
  • Davide Viaggi

Abstract

The viability of irrigated systems in Southern Europe is closely linked to efficient institutional settings and water-allocation mechanisms. A significant, although not widely used, mechanism for water allocation is an intra-sectorial water market. The objective of this paper is to evaluate to what extent water markets may contribute to the improvement of the efficiency of water allocation and to the profitability of irrigated agriculture. The related issues of water allocation among farm types and farm specialisation are also addressed. The analysis is based on a basin-level linear programming model, comparing the situation with and without a market. It includes both fixed and variable transaction costs and estimates their combined effects on market performances. The model is applied in two areas in Southern Italy and Spain, and simulates the behaviour of different farm types, derived from cluster analysis on a sample of farms in each area. The paper confirms that water markets could potentially improve the economic efficiency of water use, in terms of higher profit per hectare, given limited water availability. The potential improvements are associated with a more intense specialisation of farms and are strongly differentiated among farmers, particularly where significant restrictions to water availability occur. This corroborates the expectations of institutional difficulties in implementing water markets. However, the exchanges, and consequently the potential effects of water markets, are heavily affected by the actual level of water availability, as well as the size and the structure (fixed vs. proportional) of transaction costs. The paper calls for a more in-depth analysis of the connections between market performances and institutional settings, as related to the issue of water-agriculture policy design and coordination. Copyright Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd 2006.

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File URL: http://hdl.handle.net/10.1111/j.1467-8489.2006.00352.x
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Bibliographic Info

Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 50 (2006)
Issue (Month): 3 (09)
Pages: 361-380

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Handle: RePEc:bla:ajarec:v:50:y:2006:i:3:p:361-380

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Cited by:
  1. Sheila M. Olmstead, 2010. "The Economics of Managing Scarce Water Resources," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(2), pages 179-198, Summer.
  2. Severini, Simone & Cortignani, Raffaele, 2008. "Introducing deficit irrigation crop techniques derived by crop growth models into a Positive Mathematical Programming model," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44010, European Association of Agricultural Economists.

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