IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/109544.html
   My bibliography  Save this paper

The Illiquidity of Water Markets

Author

Listed:
  • Donna, Javier D.
  • Espin-Sanchez, Jose-A.

Abstract

We investigate the efficiency of a market relative to a non-market institution—an auction relative to a quota—as allocation mechanisms in the presence of frictions. We use data from water markets in southeastern Spain and explore a specific change in the institutions to allocate water. On the one hand, frictions arose because poor farmers were liquidity constrained. On the other hand, wealthy farmers who were part of the wealthy elite were not liquidity constrained. We estimate a structural dynamic demand model under the market by taking advantage that water demand for both types of farmers is determined by the technological constraint imposed by the crop’s production function. This approach allows us to differentiate liquidity constraints from unobserved heterogeneity. We use the estimated model to compute welfare under market and non-market institutions. We show that the institutional change from markets to quotas increased efficiency for the farmers considered.

Suggested Citation

  • Donna, Javier D. & Espin-Sanchez, Jose-A., 2021. "The Illiquidity of Water Markets," MPRA Paper 109544, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109544
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/109544/5/MPRA_paper_109542.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christine Boizot & Jean-Marc Robin & Michael Visser, 2001. "The demand for food products," Post-Print hal-03416605, HAL.
    2. Igal Hendel & Aviv Nevo, 2006. "Sales and consumer inventory," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 543-561, September.
    3. Espín-Sánchez, José-Antonio, 2017. "Institutional Inertia: Persistent Inefficient Institutions in Spain," The Journal of Economic History, Cambridge University Press, vol. 77(3), pages 692-723, September.
    4. V. Joseph Hotz & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1994. "A Simulation Estimator for Dynamic Models of Discrete Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(2), pages 265-289.
    5. Victor Aguirregabiria & Victor Aguirregabiria & Aviv Nevo & Aviv Nevo, 2010. "Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games," Working Papers tecipa-419, University of Toronto, Department of Economics.
    6. Gautam Gowrisankaran & Marc Rysman, 2012. "Dynamics of Consumer Demand for New Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1173-1219.
    7. Javier D. Donna & José†Antonio Espín†Sánchez, 2018. "Complements and substitutes in sequential auctions: the case of water auctions," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 87-127, March.
    8. V. Joseph Hotz & Robert A. Miller, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 497-529.
    9. Boizot, Christine & Robin, Jean-Marc & Visser, Michael, 2001. "The Demand for Food Products: An Analysis of Interpurchase Times and Purchased Quantities," Economic Journal, Royal Economic Society, vol. 111(470), pages 391-419, April.
    10. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 495-526.
    11. Igal Hendel & Aviv Nevo, 2013. "Intertemporal Price Discrimination in Storable Goods Markets," American Economic Review, American Economic Association, vol. 103(7), pages 2722-2751, December.
    12. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-293, March.
    13. Christopher Timmins, 2002. "Measuring the Dynamic Efficiency Costs of Regulators' Preferences: Municipal Water Utilities in the Arid West," Econometrica, Econometric Society, vol. 70(2), pages 603-629, March.
    14. Seema Jayachandran, 2013. "Liquidity Constraints and Deforestation: The Limitations of Payments for Ecosystem Services," American Economic Review, American Economic Association, vol. 103(3), pages 309-313, May.
    15. T. P. Barnett & J. C. Adam & D. P. Lettenmaier, 2005. "Potential impacts of a warming climate on water availability in snow-dominated regions," Nature, Nature, vol. 438(7066), pages 303-309, November.
    16. Gary D. Libecap, 2011. "Institutional Path Dependence in Climate Adaptation: Coman's "Some Unsettled Problems of Irrigation"," American Economic Review, American Economic Association, vol. 101(1), pages 64-80, February.
    17. Samuel Garrido, 2010. "Governing scarcity. Water markets, equity and efficiency in pre-1950s eastern Spain," Documentos de Trabajo de la Sociedad de Estudios de Historia Agraria 1012, Sociedad de Estudios de Historia Agraria.
    18. R. Quentin Grafton & Gary Libecap & Samuel McGlennon & Clay Landry & Bob O'Brien, 2011. "An Integrated Assessment of Water Markets: A Cross-Country Comparison," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 219-239, Summer.
    19. Donna, Javier & Espin-Sanchez, Jose, 2014. "Complements and Substitutes in Sequential Auctions: The Case of Water Auctions," MPRA Paper 55079, University Library of Munich, Germany.
    20. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 285-315.
    21. Christine Boizot & Jean-Marc Robin & Michael Visser, 2001. "The demand for food products," Post-Print hal-03416604, HAL.
    22. C. J. Vörösmarty & P. B. McIntyre & M. O. Gessner & D. Dudgeon & A. Prusevich & P. Green & S. Glidden & S. E. Bunn & C. A. Sullivan & C. Reidy Liermann & P. M. Davies, 2010. "Erratum: Global threats to human water security and river biodiversity," Nature, Nature, vol. 468(7321), pages 334-334, November.
    23. Igal Hendel & Aviv Nevo, 2006. "Sales and Consumer Inventory," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 543-561, Autumn.
    24. C. J. Vörösmarty & P. B. McIntyre & M. O. Gessner & D. Dudgeon & A. Prusevich & P. Green & S. Glidden & S. E. Bunn & C. A. Sullivan & C. Reidy Liermann & P. M. Davies, 2010. "Global threats to human water security and river biodiversity," Nature, Nature, vol. 467(7315), pages 555-561, September.
    25. Javier D. Donna & José‐Antonio Espín‐Sánchez, 2021. "Water theft as social insurance: south‐eastern Spain, 1851–1948," Economic History Review, Economic History Society, vol. 74(3), pages 721-753, August.
    26. Guinnane, Timothy W., 2001. "Cooperatives As Information Machines: German Rural Credit Cooperatives, 1883–1914," The Journal of Economic History, Cambridge University Press, vol. 61(2), pages 366-389, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Donna, Javier & Espin-Sanchez, Jose, 2014. "Complements and Substitutes in Sequential Auctions: The Case of Water Auctions," MPRA Paper 55079, University Library of Munich, Germany.
    2. Lars Boerner & Daniel Quint, 2023. "Medieval Matching Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 23-56, February.
    3. Donna, Javier D., 2018. "Measuring Long-Run Price Elasticities in Urban Travel Demand," MPRA Paper 90059, University Library of Munich, Germany.
    4. TANAKA Mari & NARITA Yusuke & MORIGUCHI Chiaki, 2020. "Meritocracy and Its Discontent: Long-run Effects of Repeated School Admission Reforms," Discussion papers 20002, Research Institute of Economy, Trade and Industry (RIETI).
    5. Youming Liu & Shanjun Li & Caixia Shen, 2020. "The Dynamic Efficiency in Resource Allocation: Evidence from Vehicle License Lotteries in Beijing," NBER Working Papers 26904, National Bureau of Economic Research, Inc.
    6. Nicholas Ryan & Anant Sudarshan, 2020. "Rationing the Commons," Working Papers 2020-93, Becker Friedman Institute for Research In Economics.
    7. Nicholas Ryan & Anant Sudarshan, 2020. "Rationing the Commons," Cowles Foundation Discussion Papers 2239, Cowles Foundation for Research in Economics, Yale University.
    8. Nicholas Ryan & Anant Sudarshan, 2020. "Rationing the Commons," NBER Working Papers 27473, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Donna, Javier D., 2018. "Measuring Long-Run Price Elasticities in Urban Travel Demand," MPRA Paper 90059, University Library of Munich, Germany.
    2. Février, Philippe & Wilner, Lionel, 2016. "Do consumers correctly expect price reductions? Testing dynamic behavior," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 25-40.
    3. Aguirregabiria, Victor & Nevo, Aviv, 2010. "Recent developments in empirical IO: dynamic demand and dynamic games," MPRA Paper 27814, University Library of Munich, Germany.
    4. Javier D. Donna, 2021. "Measuring long‐run gasoline price elasticities in urban travel demand," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 945-994, December.
    5. Ruochen Li, 2021. "Consumer stockpiling and demand elasticity biases: A theoretical note with applications," Manchester School, University of Manchester, vol. 89(6), pages 610-618, December.
    6. Jakina Debnam, 2017. "Selection Effects and Heterogeneous Demand Responses to the Berkeley Soda Tax Vote," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(5), pages 1172-1187.
    7. Kalouptsidi, Myrto & Scott, Paul T. & Souza-Rodrigues, Eduardo, 2021. "Linear IV regression estimators for structural dynamic discrete choice models," Journal of Econometrics, Elsevier, vol. 222(1), pages 778-804.
    8. Scott, Paul, 2014. "Dynamic Discrete Choice Estimation of Agricultural Land Use," TSE Working Papers 14-526, Toulouse School of Economics (TSE).
    9. Takeshi Fukasawa, 2022. "The Biases in Applying Static Demand Models under Dynamic Demand," Discussion Paper Series DP2022-18, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2022.
    10. Victor Aguirregabiria, 2023. "Dynamic demand for differentiated products with fixed-effects unobserved heterogeneity," The Econometrics Journal, Royal Economic Society, vol. 26(1), pages 1-25.
    11. Myrto Kalouptsidi & Paul T. Scott & Eduardo Souza-Rodrigues, 2018. "Linear IV Regression Estimators for Structural Dynamic Discrete Choice Models," NBER Working Papers 25134, National Bureau of Economic Research, Inc.
    12. Tiago Pires, 2016. "Costly search and consideration sets in storable goods markets," Quantitative Marketing and Economics (QME), Springer, vol. 14(3), pages 157-193, September.
    13. Kalouptsidi, Myrto & Scott, Paul T. & Souza-Rodrigues, Eduardo, 2018. "Linear IV Regression Estimators for Structural Dynamic Discrete Choice Models," CEPR Discussion Papers 13240, C.E.P.R. Discussion Papers.
    14. Mira Frick & Ryota Iijima & Tomasz Strzalecki, 2019. "Dynamic Random Utility," Econometrica, Econometric Society, vol. 87(6), pages 1941-2002, November.
    15. Baker, Scott R. & Johnson, Stephanie & Kueng, Lorenz, 2024. "Financial returns to household inventory management," Journal of Financial Economics, Elsevier, vol. 151(C).
    16. Kalouptsidi, Myrto & Scott, Paul & Souza-Rodrigues, Edouardo, 2015. "Identification of Counterfactuals and Payoffs in Dynamic Discrete Choice with an Application to Land Use," TSE Working Papers 15-596, Toulouse School of Economics (TSE).
    17. Adam Copeland, 2014. "Intertemporal substitution and new car purchases," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 624-644, September.
    18. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    19. P. Février & L. Wilner, 2012. "Do Consumers Correctly Expect Price Reductions? Testing Dynamic Behavior," Documents de Travail de l'Insee - INSEE Working Papers g2012-03, Institut National de la Statistique et des Etudes Economiques.
    20. Victor Aguirregabiria & Allan Collard-Wexler & Stephen P. Ryan, 2021. "Dynamic Games in Empirical Industrial Organization," NBER Working Papers 29291, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Market Efficiency; Dynamic Demand; Auctions; Quotas; Vertical Integration; Financial Markets;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:109544. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.