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Water Allocation, Crop Choice, and Priority Services

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  • Salanié, François
  • Zaporozhets, Vera

Abstract

We analyze the problem of allocating irrigation water among het- erogenous farmers when water supply is stochastic. If farmers are risk-neutral, a spot market for water is e¢ cient; while the oft-used uniform rationing system is ine¢ cient, both ex-ante and ex-post. In- deed, we show that it leads farmers to overexpose to risk, thus making shortages more severe and more frequent in case of drought. We pro- pose instead a regulation by priority classes extending Wilson (1989), and we derive an e¢ ciency result. We characterize the set of farmers that would win or loose from such a reform. We also argue that a system of priority classes may be preferred to a spot market system, because scarcity is easier to manage ex-ante than ex-post, and because this system facilitates the supply of insurance to risk-averse agents.

Suggested Citation

  • Salanié, François & Zaporozhets, Vera, 2021. "Water Allocation, Crop Choice, and Priority Services," TSE Working Papers 21-1235, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:125835
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    More about this item

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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