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Water Markets and Third Party Effects


  • Bourgeon, Jean-Marc
  • Easter, K. William
  • Smith, Rodney B.W.


We examine the potential effects of water trading on aggregate welfare and income distribution across the agricultural and service sector of a small rural economy. We show that per capita welfare (real income) of agents in the region increase with increased water trading. Not surprisingly, if enough agents leaves the region (income flight), nominal income can fall. If the share of household income spent on services is large (small) relative to the cost share of services in agricultural production, then the service price increases (decreases) with increased water trading. Typically when the service price falls (increases) farmers win (lose), service providers lose (win) and agricultural service providers almost always lose. Thus, a natural conflict emerges between farming and service sector stakeholders.

Suggested Citation

  • Bourgeon, Jean-Marc & Easter, K. William & Smith, Rodney B.W., 2006. "Water Markets and Third Party Effects," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25616, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae06:25616

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    References listed on IDEAS

    1. Jacinto F. Fabiosa & John C. Beghin & Fengxia Dong & Amani Elobeid & Frank H. Fuller & Holger Matthey & Simla Tokgoz & Eric Wailes, 2005. "Impact of the European Enlargement and Common Agricultural Policy Reforms on Agricultural Markets: Much Ado about Nothing? The," Center for Agricultural and Rural Development (CARD) Publications 05-wp382, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Frank H. Fuller & John C. Beghin & Samarendu Mohanty & Jacinto F. Fabiosa & Cheng Fang & Phillip Kaus, 1999. "Impact of the Berlin Accord and European Enlargement on Dairy Markets, The," Food and Agricultural Policy Research Institute (FAPRI) Publications 99-wp231, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
    3. Robert W. Ackrill, 2003. "EU Enlargement, the CAP and the Cost of Direct Payments: A Note," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 73-78.
    4. Nahuis, Richard, 2004. "One size fits all?: Accession to the internal market; an industry-level assessment of EU enlargement," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 571-586, July.
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    Cited by:

    1. Jason Henderson & Maria Akers, 2008. "Can markets improve water allocation in rural America?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 97-117.
    2. Marianne LEFEBVRE & Lata GANGADHARAN & Sophie THOYER, 2011. "Do Security-differentiated Water Rights Improve Efficiency?," Working Papers 11-14, LAMETA, Universtiy of Montpellier, revised Jun 2012.

    More about this item


    Resource /Energy Economics and Policy; Q25; Q28; R0;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General


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