Using tradable water permits in irrigated agriculture

One of the most important challenges facing agricultural water policy is the design of mechanisms enabling the transition from the current myopic exploitation to an efficient and sustainable use of groundwater resources. Tradable water permits systems can be very effective and efficient instruments, especially under conditions of limited water availability. The present paper examines both theoretically and empirically the efficiency potential of implementing a tradable permit system in irrigated agriculture taking into account the heterogeneity of crop agro-economic profiles within a single aquifer. We first confirm that in the absence of any water management system individual farmers deplete the available water resources very fast and that both a tradable and a non tradeable water permit management system provide the basic mechanism for sustainable water use. Âoth systems impose significant costs on farmers which can be counterbalanced if water depletion is associated with lower productivity as a result of water quality changes (i.e. water salinization). However, when trade of water is allowed the benefits of implementing a permit management system are maximized. The more diverse, in technology and market prices, are the crops sharing the same aquifer and the stricter is the water constrain, the higher are the benefits from using a tradable water permit system.