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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.

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File URL: http://aphrodite.uom.gr/econwp/pdf/dp042013.pdf
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Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2013_04.

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Date of creation: Dec 2013
Date of revision: Dec 2013
Handle: RePEc:mcd:mcddps:2013_04
Contact details of provider: Web page: http://www.uom.gr/index.php?tmima=3

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  1. Marita Laukkanen & Phoebe Koundouri, "undated". "Competition versus coopertion in groundwater extraction: A stochastic framework with heteregoneous agents," DEOS Working Papers 0606, Athens University of Economics and Business.
  2. Marca Weinberg & Catherine L. Kling & James E. Wilen, 1993. "Water Markets and Water Quality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 278-291.
  3. Tom Tietenberg, 2003. "The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 400-419.
  4. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 703-740, December.
  5. Garcia, Serge & Reynaud, Arnaud, 2004. "Estimating the benefits of efficient water pricing in France," Resource and Energy Economics, Elsevier, vol. 26(1), pages 1-25, March.
  6. Ereney Hadjigeorgalis, 2009. "A Place for Water Markets: Performance and Challenges," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(1), pages 50-67.
  7. Burness, H. Stuart & Brill, Thomas C., 2001. "The role for policy in common pool groundwater use," Resource and Energy Economics, Elsevier, vol. 23(1), pages 19-40, January.
  8. Bill Provencher, 1993. "A Private Property Rights Regime to Replenish a Groundwater Aquifer," Land Economics, University of Wisconsin Press, vol. 69(4), pages 325-340.
  9. Dustin Garrick & Bruce Aylward, 2012. "Transaction Costs and Institutional Performance in Market-Based Environmental Water Allocation," Land Economics, University of Wisconsin Press, vol. 88(3), pages 536-560.
  10. Basharat A. Pitafi & James A. Roumasset, 2009. "Pareto-Improving Water Management over Space and Time: The Honolulu Case," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 138-153.
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