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Monopoly power and distribution in fragmented markets : the case of groundwater

  • Jacoby, Hanan G.
  • Murgai, Rinku
  • Rehman, Saeed Ur

Using data from Pakistan's Punjab, the authors examine monopoly power in the market for groundwater - irrigation water extracted using private tubewells - a market characterized by barriers to entry and spatial fragmentation. Simple theory predicts that tubewell owners should price-discriminate in favor of their own share tenants. And this analysis of individual groundwater transactions over an 18-month period confirms such price discrimination. And among those studied, tubewell owners and their tenants use considerably more groundwater on their plots than do other farmers. The authors also provide evidence that monopoly pricing of groundwater leads to compensating - albeit small - reallocations of canal water, which farmers exchange in a separate informal market. Despite the substantial misallocation of groundwater, a welfare analysis show that monopoly pricing has limited effects on equity and efficiency. In the long run, a policy aimed at eliminating monopoly pricing would do little to help the poorest farmers.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2628.

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Date of creation: 30 Jun 2001
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Handle: RePEc:wbk:wbrwps:2628
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  1. Kenneth M. Kletzer and Brian D. Wright., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research (CIDER) Working Papers C98-100, University of California at Berkeley.
  2. William Hallagan, 1978. "Self-Selection by Contractual Choice and the Theory of Sharecropping," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 344-354, Autumn.
  3. Meinzen-Dick, Ruth Suseela, 1996. "Groundwater markets in Pakistan: participation and productivity," Research reports 105, International Food Policy Research Institute (IFPRI).
  4. Basu, Kaushik, 1987. "Disneyland monopoly, interlinkage and usurious interest rates," Journal of Public Economics, Elsevier, vol. 34(1), pages 1-17, October.
  5. Basu, Kaushik & Bell, Clive, 1991. "Fragmented duopoly : Theory and applications to backward agriculture," Journal of Development Economics, Elsevier, vol. 36(2), pages 145-165, October.
  6. Tushaar Shah, & Intizar Hussain & Saeed ur Rehman, 2000. "Irrigation Management in Pakistan and India: Comparing Notes on Institutions and Policies," IWMI Working Papers H027088, International Water Management Institute.
  7. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
  8. Fafchamps, Marcel & Pender, John, 1997. "Precautionary Saving, Credit Constraints, and Irreversible Investment: Theory and Evidence from Semiarid India," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 180-94, April.
  9. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  10. repec:wuk:andedp:9705 is not listed on IDEAS
  11. Abhijit Banerjee & Dilip Mookherjee & Kaivan Munshi & Debraj Ray, 2001. "Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 138-190, February.
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