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Modelling water markets under uncertain water supply

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  • Javier Calatrava
  • Alberto Garrido

Abstract

This paper looks at the risk dimension of water markets under uncertain water supply. We model market participants' decisions under uncertainty and evaluate gains from trade under two different market arrangements. These differ in the confidence that irrigators can place in the water market-clearing processes, and their chances of pursuing tactical responses to deal with supply uncertainty. A two-stage stochastic model, that simulates both market arrangements, is applied to an irrigation district of Southern Spain. We show that centralised water markets, perhaps brokered by the water authority, lead to more efficient allocation and resource use than decentralised markets. The paper highlights the importance of providing a reliable market setting. Copyright 2005, Oxford University Press.

Suggested Citation

  • Javier Calatrava & Alberto Garrido, 2005. "Modelling water markets under uncertain water supply," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(2), pages 119-142, June.
  • Handle: RePEc:oup:erevae:v:32:y:2005:i:2:p:119-142
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    References listed on IDEAS

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    Cited by:

    1. Reto Foellmi & Urs Meister, 2012. "Enhancing the Efficiency of Water Supply—Product Market Competition Versus Trade," Journal of Industry, Competition and Trade, Springer, vol. 12(3), pages 299-324, September.
    2. Dono, Gabriele & Cortignani, Raffaele & Dell'Unto, Davide & Deligios, Paola & Doro, Luca & Lacetera, Nicola & Mula, Laura & Pasqui, Massimiliano & Quaresima, Sara & Vitali, Andrea & Roggero, Pier Paol, 2016. "Winners and losers from climate change in agriculture: Insights from a case study in the Mediterranean basin," Agricultural Systems, Elsevier, pages 65-75.
    3. Dono, Gabriele & Cortignani, Raffaele & Doro, Luca & Giraldo, Luca & Ledda, Luigi & Pasqui, Massimiliano & Roggero, Pier Paolo, 2013. "Adapting to uncertainty associated with short-term climate variability changes in irrigated Mediterranean farming systems," Agricultural Systems, Elsevier, pages 1-12.
    4. Ji, Xinde & Cobourn, Kelly M., 2017. "The Economic Benefits of Irrigation Districts under Prior Appropriation Doctrine: An Econometric Analysis of Agricultural Land-allocation Decisions," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252838, Southern Agricultural Economics Association.
    5. Villamayor-Tomas, Sergio, 2014. "Cooperation in common property regimes under extreme drought conditions: Empirical evidence from the use of pooled transferable quotas in Spanish irrigation systems," Ecological Economics, Elsevier, vol. 107(C), pages 482-493.
    6. Blanco-Gutiérrez, Irene & Varela-Ortega, Consuelo & Flichman, Guillermo, 2011. "Cost-effectiveness of groundwater conservation measures: A multi-level analysis with policy implications," Agricultural Water Management, Elsevier, vol. 98(4), pages 639-652, February.
    7. Dono, Gabriele & Cortignani, Raffaele & Giraldo, Luca & Doro, Luca & Ledda, Luigi & Pasqui, Massimiliano & Roggero, PierPaolo, 2012. "Evaluating productive and economic impacts of climate change variability on the farm sector of an irrigated Mediterranean area," 126th Seminar, June 27-29, 2012, Capri, Italy 126099, European Association of Agricultural Economists.
    8. Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply – Product Market Competition versus Trade," Public Economics 0412012, EconWPA.
    9. Joan Pujol & Meri Raggi & Davide Viaggi, 2006. "The potential impact of markets for irrigation water in Italy and Spain: a comparison of two study areas ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, pages 361-380.
    10. Dono, Gabriele & Mazzapicchio, Graziano, 2010. "Uncertain water supply in an irrigated Mediterranean area: An analysis of the possible economic impact of climate change on the farm sector," Agricultural Systems, Elsevier, pages 361-370.
    11. Connor, Jeffery D. & Kandulu, John M. & Bark, Rosalind H., 2014. "Irrigation revenue loss in Murray–Darling Basin drought: An econometric assessment," Agricultural Water Management, Elsevier, vol. 145(C), pages 163-170.
    12. Gil, Marina & Garrido, Alberto & Gómez-Ramos, Almudena, 2011. "Economic analysis of drought risk: An application for irrigated agriculture in Spain," Agricultural Water Management, Elsevier, vol. 98(5), pages 823-833, March.
    13. Goetz, Renan U. & Martinez, Yolanda & Rodrigo, Jofre, 2008. "Water allocation by social choice rules: The case of sequential rules," Ecological Economics, Elsevier, vol. 65(2), pages 304-314, April.
    14. Calatrava-Leyva, Javier & Martinez-Granados, David, 2012. "El valor del uso del agua en el regadío de la cuenca del Segura y en las zonas regables del trasvase Tajo-Segura," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 12(1).
    15. Lavee, Doron, 2010. "The effect of water supply uncertainty on farmers' choice of crop portfolio," Agricultural Water Management, Elsevier, vol. 97(11), pages 1847-1854, November.
    16. Marnie Griffith & Gary Codner & Erwin Weinmann & Sergei Schreider, 2009. "Modelling hydroclimatic uncertainty and short-run irrigator decision making: the Goulburn system ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, pages 565-584.
    17. Kahil, Mohamed Taher & Connor, Jeffery D. & Albiac, Jose, 2015. "Efficient water management policies for irrigation adaptation to climate change in Southern Europe," Ecological Economics, Elsevier, vol. 120(C), pages 226-233.

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