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Auctions for buying back groundwater for environmental purposes: Which design performs better?

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  • Le Lan
  • Md Sayed Iftekhar
  • James Fogarty
  • Steven Schilizzi

Abstract

Buyback auctions to reduce groundwater extraction for agriculture have been used in many real world scenarios but, to date, the impact of different auction design mechanisms for this context has not been comprehensively studied. Here, three auction design issues are studied: (i) framing the overall objective as either a budget constrained auction or a water target auction; (ii) the severity of budget and target constraints; and (iii) the role of a spatially explicit environmental benefit index. To answer the research questions an agent‐based optimisation model is developed for the most important groundwater system in Western Australia. The results show that a budget constrained auction performs as well or better than a target constrained auction and that use of an environmental benefit index improves auction efficiency.

Suggested Citation

  • Le Lan & Md Sayed Iftekhar & James Fogarty & Steven Schilizzi, 2021. "Auctions for buying back groundwater for environmental purposes: Which design performs better?," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(3), pages 931-948, September.
    • Handle: RePEc:bla:jageco:v:72:y:2021:i:3:p:931-948
    DOI: 10.1111/1477-9552.12442
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    Cited by:

    1. Iftekhar, Md Sayed & Fogarty, James, 2022. "Benefits of a groundwater allocation trading arrangement in a water-stressed environment," Agricultural Water Management, Elsevier, vol. 269(C).
    2. Courtney M. Regan & Jeffery D. Connor & Md Sayed Iftekhar, 2023. "An economic assessment of options for operating within plantation forestry water entitlements and tightening cap and trade policy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(2), pages 303-322, April.

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