The potential impact of markets for irrigation water in Italy and Spain: a comparison of two study areas*

Authors

  • Joan Pujol,

    1. Agricultural Economics, Department of Chemical and Agricultural Engineering and Agrifood Technology, University of Girona, Girona, Spain
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  • Meri Raggi,

    1. Statistics, Department of Statistical Science, University of Bologna, Bologna, Italy
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  • Davide Viaggi

    1. Agricultural Economics, Department of Agricultural Economics and Engineering, University of Bologna, Bologna, Italy
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    • Joan Pujol is a Lecturer in Agricultural Economics, Department of Chemical and Agricultural Engineering and Agrifood Technology, University of Girona, Girona, Spain. Meri Raggi is a Researcher in Statistics, Department of Statistical Science, University of Bologna, Bologna, Italy. Davide Viaggi (divide.viaggi@unido.it) is a Researcher in Agricultural Economics, Department of Agricultural Economics and Engineering, University of Bologna, Bologna, Italy.


  • *

    This paper is the result of the collaboration of all authors. In particular, J. Pujol wrote Section 4 and carried out the analysis for Low Ter, M. Raggi wrote Section 5, and D. Viaggi wrote Sections 2 and 3. The introduction and the discussion are a common work of the authors. The authors are grateful to Vittorio Gallerani and Giacomo Zanni for the coordination of the research. The authors also wish to thank the anonymous referees. Remaining errors and omissions are the responsibility of the authors.

Abstract

The viability of irrigated systems in Southern Europe is closely linked to efficient institutional settings and water-allocation mechanisms. A significant, although not widely used, mechanism for water allocation is an intra-sectorial water market. The objective of this paper is to evaluate to what extent water markets may contribute to the improvement of the efficiency of water allocation and to the profitability of irrigated agriculture. The related issues of water allocation among farm types and farm specialisation are also addressed. The analysis is based on a basin-level linear programming model, comparing the situation with and without a market. It includes both fixed and variable transaction costs and estimates their combined effects on market performances. The model is applied in two areas in Southern Italy and Spain, and simulates the behaviour of different farm types, derived from cluster analysis on a sample of farms in each area. The paper confirms that water markets could potentially improve the economic efficiency of water use, in terms of higher profit per hectare, given limited water availability. The potential improvements are associated with a more intense specialisation of farms and are strongly differentiated among farmers, particularly where significant restrictions to water availability occur. This corroborates the expectations of institutional difficulties in implementing water markets. However, the exchanges, and consequently the potential effects of water markets, are heavily affected by the actual level of water availability, as well as the size and the structure (fixed vs. proportional) of transaction costs. The paper calls for a more in-depth analysis of the connections between market performances and institutional settings, as related to the issue of water-agriculture policy design and coordination.

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