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Capacity sharing enhances efficiency in water markets involving storage

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  • Truong, Chi H.
  • Drynan, Ross G.

Abstract

Due to the asymmetric information problem, inter-temporal water allocation efficiency requires a water allocation institution that allows water right holders to store their allocated water. Capacity sharing has been recommended, but the problem of internal spillage that may arise in a capacity sharing system causes concerns for the implementation of such institutions. In this paper, the optimality of water allocation within a capacity sharing system in presence of a spot water market is studied. We show that in the presence of a spot water market with zero transaction cost, an appropriately designed capacity sharing system will result in optimal water allocation.

Suggested Citation

  • Truong, Chi H. & Drynan, Ross G., 2013. "Capacity sharing enhances efficiency in water markets involving storage," Agricultural Water Management, Elsevier, vol. 122(C), pages 46-52.
    • Handle: RePEc:eee:agiwat:v:122:y:2013:i:c:p:46-52
    DOI: 10.1016/j.agwat.2013.03.002
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    References listed on IDEAS

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    Cited by:

    1. Xie, Yang & Zilberman, David, 2015. "Water-Storage Capacities versus Water-Use Efficiency: Substitutes or Complements?," 2015 Conference, August 9-14, 2015, Milan, Italy 211894, International Association of Agricultural Economists.

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