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Structural Estimation of Demand for Irrigation Water Under Strategic Behavior

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  • Sesmero, Juan
  • Schoengold, Karina
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    Abstract

    Government subsidies on electricity used for pumping groundwater by agricultural irrigators has long been suspected to be an important reason for overexploitation of aquifers in Mexico. We hypothesize that institutional arrangements that exacerbate non-excludability of groundwater also matter. We develop and estimate a model that accommodates strategic interactions among agricultural irrigators operating under distortive institutional arrangements. Results suggest that institutional arrangements are more important than electricity subsidies in explaining over extraction. Results also reveal that cost sharing of electricity by farmers may cause behavioral conjectures to change from negative (closer to Bertrand conjectures) to positive (closer to collusive conjectures). A new source of externalities is identified in Mexico’s institutional context (cost-share externalities) and found to be negatively linked to strategic externalities.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150286.

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    Date of creation: 2013
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    Handle: RePEc:ags:aaea13:150286

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    Keywords: Resource /Energy Economics and Policy;

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    1. Catherine J. Morrison Paul, 2001. "Cost Economies And Market Power: The Case Of The U.S. Meat Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 531-540, August.
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