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Irrigation Technology Adoption and Gains from Water Trading under Asymmetric Information

  • Chokri Dridi
  • Madhu Khanna

We develop a water allocation and irrigation technology adoption model under the prior appropriation doctrine with asymmetric information among heterogeneous farmers and between farmers and water authorities. We find that adverse selection reduces the adoption of modern irrigation technology. We also show that even with asymmetric information, incentives for water trade exist and lead to additional technology adoption with gains to all parties. This suggests that under asymmetric information, a thin secondary market improves the allocation of water resources and induces additional adoption of modern irrigation technologies. Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1111/j.1467-8276.2005.00722.x
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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 87 (2005)
Issue (Month): 2 ()
Pages: 289-301

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Handle: RePEc:oup:ajagec:v:87:y:2005:i:2:p:289-301
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  1. 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.
  2. Gresik, Thomas A., 1991. "Ex ante efficient, ex post individually rational trade," Journal of Economic Theory, Elsevier, vol. 53(1), pages 131-145, February.
  3. 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.
  4. Burness, H Stuart & Quirk, James P, 1980. "Water Law, Water Transfers, and Economic Efficiency: The Colorado River," Journal of Law and Economics, University of Chicago Press, vol. 23(1), pages 111-34, April.
  5. David Zilberman & Neal Macdougall & Farhed Shah, 1994. "Changes In Water Allocation Mechanisms For California Agriculture," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 122-133, 01.
  6. Khanna, Madhu & Isik, Murat & Zilberman, David, 2002. "Cost-effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 27(2), August.
  7. Livingston, Marie Leigh & DEC, 1993. "Designing water institutions : market failures and institutional response," Policy Research Working Paper Series 1227, The World Bank.
  8. 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.
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