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Efficacy Of Water Trading Under Asymmetric Information And Implications For Technology Adoption

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  • Dridi, Chokri
  • Khanna, Madhu

Abstract

The purpose of this paper is to develop a water allocation and technology adoption model under the prior appropriation doctrine that recognizes informational asymmetry among water users and between water users and water authorities. We consider informational asymmetry about the agent's type, defined by a mix of land quality and knowledge. Adverse selection is found to significantly reduce the adoption of modern irrigation technology and to lead to less retirement of poor quality lands than under full information. Further investigation shows that even with asymmetric information, incentives for water trades can exist and lead to additional technology adoption with gains to all parties. Our results suggest that under asymmetric information, even a thin secondary market can improve the allocation of water resources.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2003 Annual meeting, July 27-30, Montreal, Canada with number 22140.

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Date of creation: 2003
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Handle: RePEc:ags:aaea03:22140

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Keywords: Resource /Energy Economics and Policy;

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  1. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
  2. R. Maria Saleth & John B. Braden & J. Wayland Eheart, 1991. "Bargaining Rules for a Thin Spot Water Market," Land Economics, University of Wisconsin Press, vol. 67(3), pages 326-339.
  3. Howitt, Richard E., 1994. "Empirical analysis of water market institutions: The 1991 California water market," Resource and Energy Economics, Elsevier, vol. 16(4), pages 357-371, November.
  4. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
  5. Dinar, Ariel & Letey, J., 1991. "Agricultural water marketing, allocative efficiency, and drainage reduction," Journal of Environmental Economics and Management, Elsevier, vol. 20(3), pages 210-223, May.
  6. Livingston, Marie Leigh & DEC, 1993. "Designing water institutions : market failures and institutional response," Policy Research Working Paper Series 1227, The World Bank.
  7. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  8. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-98, April.
  9. Gresik, Thomas A., 1991. "Ex ante efficient, ex post individually rational trade," Journal of Economic Theory, Elsevier, vol. 53(1), pages 131-145, February.
  10. Booker J. F. & Young R. A., 1994. "Modeling Intrastate and Interstate Markets for Colorado River Water Resources," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 66-87, January.
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