Department of Environmental and Resource Economics, Environmental Sciences Research Institute, Shahid Beheshti University, Tehran, Iran
Abstract
Water is a valuable and scarce production factor in the agricultural sector of Iran. At present, water resources are allocated by the government agencies, based mostly on socio-political criteria instead of economic measurements. Administrative water resource management has resulted in an inappropriate water allocation and water use, as water use efficiency is reported about 36% in the agriculture sector now. Recently, the water market has been introduced as an alternative mechanism to an administrative manner for increasing water use efficiency in several developed and developing countries. Water is transferred from low to highest marginal return use and consequently water use efficiency increases in the water market. This paper estimates potential gains of implementing agricultural water market in Saveh region by using a mathematical programming model. Results show that water trade among 24 villages in this region can increase farmers’ profits, particularly during a water scarcity period. Also, a water market can increase labour demand and mitigate negative impacts of water scarcity on employment. Additionally, results show that the transaction costs must be declined to broaden the water markets.
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