No abstract

Since the 1970s, supply augmentation strategies to meet water needs have waned, and governments have increasingly focused on demand management measures, including voluntary water transfers. Water demands have also changed as expanding urban growth, changes in agriculture, and increasing concern for the environment compete for water. Water rights regimes based on queuing principles lead to an inefficient allocation of water resources and may also result in other inefficiencies, such as overuse of land and inadequate adoption of capital-intensive conservation technologies. Water trading based on transferable water rights has been advanced as a solution to these problems. Trading helps equalize the marginal prices faced by various water users, thereby providing information about the value of water in alternative uses and creating compatible incentives. Putting water markets into practice introduces realworld complications of transaction costs and third-party externalities. We present these complications along with some major criticisms of water markets, and actual cases of water trading are discussed. We conclude with avenues of potential future research.

Water price reforms are increasingly being used to encourage improvements in irrigation efficiency through technology adoption. A microparameter approach based on field-level data is used to assess the effect of economic variables, environmental characteristics, and institutional variables on irrigation technology choices. The results show that water price is not the most important factor governing irrigation technology adoption; physical and agronomic characteristics appear to matter more. The results demonstrate the importance of using micro-level data to determine the effects of asset heterogeneity and crop type on technology adoption. Copyright 1996, Oxford University Press.

[1] Using panel data from a period of water rate reform, this paper estimates the price elasticity of irrigation water demand. Price elasticity is decomposed into the direct effect of water management and the indirect effect of water price on choice of output and irrigation technology. The model is estimated using an instrumental variables strategy to account for the endogeneity of technology and output choices in the water demand equation. Estimation results indicate that the price elasticity of agricultural water demand is À0.79, which is greater than that found in previous studies.