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Market‐Based Policy Instruments, Irrigation Water Demand, and Crop Diversification in the Bow River Basin of Southern Alberta

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  • Lixia He
  • Theodore M. Horbulyk

Abstract

This paper investigates two market‐based policy instruments, short‐term water trading and volumetric water pricing, in a jurisdiction where historical water allocations are based on the seniority of appropriative water rights. The analysis identifies the potential effects of alternative surface water allocations on crop choices and on producer incomes in three irrigation districts in the Bow River Sub‐basin of the South Saskatchewan River. The short‐run effects of these alternative policy instruments are examined in scenarios where seasonal water supplies are reduced by 10–30% relative to the 2003 water usage levels. An important contribution of the paper is to present a computational, positive mathematical programming model that integrates both irrigation decisions and specific crop choices when characterizing agents' optimal responses to moderate water scarcity. The numerical results illustrate the manner in which the use of these market‐based economic instruments can increase the irrigated land area and economic welfare relative to the allocations made based only on the seniority of water rights. Under full information with no transactions costs, the use of water pricing for allocation purposes can achieve the same production outcomes as could be reached under short‐term water trading. However, the distribution of potential monetary gains and losses among agents would vary considerably across policies. Le présent article étudie deux instruments de politique fondés sur le marché, soit le commerce de l'eau à court terme et l'établissement du prix de l'eau en fonction du volume, dans une province où l'attribution de l'eau est historiquement fondée sur l'ancienneté des droits d'appropriation de l'eau. L'analyse a exposé les effets potentiels de divers moyens d'attribution de l'eau de surface sur le choix des cultures et le revenu des producteurs dans trois districts d'irrigation situés dans le sous‐bassin de la rivière Bow qui s'écoule dans le sous‐bassin de la rivière Saskatchewan Sud. Nous avons examiné les effets à court terme de ces moyens dans des scénarios où les approvisionnements saisonniers en eau ont été réduits de 10 à 30 p. 100 par rapport aux niveaux d'utilisation de l'eau établis en 2003. Le présent article visait, entre autres, à présenter un modèle de programmation mathématique positive intégrant à la fois les décisions concernant l'irrigation et le choix de cultures spécifiques au moment de caractériser les réactions optimales des agents face à une rareté modérée de l'eau. Les résultats numériques ont montré de quelle façon l'utilisation de ces instruments économiques fondés sur le marché pouvait accroître les superficies irriguées et le bien‐être économique comparativement à l'attribution de l'eau fondée sur l'ancienneté des droits d'appropriation de l'eau. Selon les renseignements complets sans coûts de transaction, le recours à l'établissement du prix de l'eau en fonction du volume et le commerce de l'eau à court terme peuvent permettre d'obtenir les mêmes résultats en matière de production. Toutefois, la répartition des pertes et des gains éventuels entre les agents varieraient considérablement d'une politique à l'autre.

Suggested Citation

  • Lixia He & Theodore M. Horbulyk, 2010. "Market‐Based Policy Instruments, Irrigation Water Demand, and Crop Diversification in the Bow River Basin of Southern Alberta," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(2), pages 191-213, June.
  • Handle: RePEc:bla:canjag:v:58:y:2010:i:2:p:191-213
    DOI: 10.1111/j.1744-7976.2009.01175.x
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    References listed on IDEAS

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    1. Richard E. Howitt, 1995. "Positive Mathematical Programming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 329-342.
    2. Wang, Lizhong & Fang, Liping & Hipel, Keith W., 2008. "Basin-wide cooperative water resources allocation," European Journal of Operational Research, Elsevier, vol. 190(3), pages 798-817, November.
    3. Mahan, Robert C. & Horbulyk, Theodore M. & Rowse, John G., 2002. "Market mechanisms and the efficient allocation of surface water resources in southern Alberta," Socio-Economic Planning Sciences, Elsevier, vol. 36(1), pages 25-49, March.
    4. Michael E. Johnson & William A. Masters & Paul V. Preckel, 2006. "Diffusion and spillover of new technology: a heterogeneous‐agent model for cassava in West Africa," Agricultural Economics, International Association of Agricultural Economists, vol. 35(2), pages 119-129, September.
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    1. Ali, Md Kamar & Klein, K.K., 2014. "Implications of current and alternative water allocation policies in the Bow River Sub Basin of Southern Alberta," Agricultural Water Management, Elsevier, vol. 133(C), pages 1-11.
    2. Md Kamar Ali, 2016. "Improving Allocative Efficiency of Scarce Water in Southern Alberta," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-22, June.
    3. D. M. Lambert & C. N. Boyer & L. He, 2016. "Spatial-temporal heteroskedastic robust covariance estimation for Markov transition probabilities: an application examining land use change," Letters in Spatial and Resource Sciences, Springer, vol. 9(3), pages 353-362, October.
    4. Yiğit Sağlam, 2019. "Welfare Implications of Water Scarcity: Higher Prices of Desalination," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(4), pages 995-1022, August.
    5. He, Lixia & Horbulyk, Theodore M. & Ali, Md. Kamar & Le Roy, Danny G. & Klein, K.K., 2012. "Proportional water sharing vs. seniority-based allocation in the Bow River basin of Southern Alberta," Agricultural Water Management, Elsevier, vol. 104(C), pages 21-31.
    6. Gunter, Allison & Goemans, Chris & Pritchett, James G. & Thilmany, Dawn D., 2012. "Linking an Equilibrium Displacement Mathematical Programming Model and an Input-Output Model to Estimate the Impacts of Drought: An Application to Southeast Colorado," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124930, Agricultural and Applied Economics Association.
    7. Debaere, Peter & Li, Tianshu, 2017. "The Effects of Water Markets: Evidence from the Rio Grande," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259187, Agricultural and Applied Economics Association.

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