IDEAS home Printed from https://ideas.repec.org/a/eee/agiwat/v269y2022ics0378377422001962.html
   My bibliography  Save this article

Benefits of a groundwater allocation trading arrangement in a water-stressed environment

Author

Listed:
  • Iftekhar, Md Sayed
  • Fogarty, James

Abstract

The Gnangara groundwater system is Western Australia’s most important groundwater resource, but it is being depleted. Although Australia has been at the forefront of establishing water markets, Western Australia has been slow to adopt legislation that would support trade in groundwater. This study explores the impact of introducing groundwater trading within the horticulture sector for farms that extract water from the Gnangara system. We use a simulation-optimization framework to evaluate market performance. The model is based on detailed water allocation data obtained from the relevant water agency. A farm optimization model was used to generate supply and demand functions for water at the individual farm level, and the market clearing price for water was established via a uniform price double-sided auction. The level of water available for extraction was also varied. The model considers unrestricted trading and trading within relatively small groundwater zones that limit the potential for local over-extraction externalities. The results show (1) substantial economic gains from allowing trading are possible, (2) most of the gains from establishing a groundwater market can be realized from within-zone trading only, (3) industry consolidation follows the introduction of trading, and (4) without zonal trading restrictions local over-extraction externalities are present. Also, with groundwater trading, we find that reallocating water to the most efficient producers could reduce horticulture sector water extraction by 14%, while maintaining the existing value of agricultural production in the area.

Suggested Citation

  • Iftekhar, Md Sayed & Fogarty, James, 2022. "Benefits of a groundwater allocation trading arrangement in a water-stressed environment," Agricultural Water Management, Elsevier, vol. 269(C).
    • Handle: RePEc:eee:agiwat:v:269:y:2022:i:c:s0378377422001962
    DOI: 10.1016/j.agwat.2022.107649
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378377422001962
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.agwat.2022.107649?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Palazzo, Amanda & Brozović, Nicholas, 2014. "The role of groundwater trading in spatial water management," Agricultural Water Management, Elsevier, vol. 145(C), pages 50-60.
    2. Le Lan & Md Sayed Iftekhar & James Fogarty & Steven Schilizzi, 2021. "Auctions for buying back groundwater for environmental purposes: Which design performs better?," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(3), pages 931-948, September.
    3. Ram RANJAN, 2014. "Groundwater Management Through Collective Participation: Why Some Institutions Succeed And Others Fail?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 85(3), pages 427-452, September.
    4. P. Gonzales & N. K. Ajami, 2019. "Goal-based water trading expands and diversifies supplies for enhanced resilience," Nature Sustainability, Nature, vol. 2(2), pages 138-147, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kelly, T.D. & Foster, T. & Schultz, David M., 2023. "Assessing the value of adapting irrigation strategies within the season," Agricultural Water Management, Elsevier, vol. 275(C).
    2. Courtney M. Regan & Jeffery D. Connor & Md Sayed Iftekhar, 2023. "An economic assessment of options for operating within plantation forestry water entitlements and tightening cap and trade policy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(2), pages 303-322, April.
    3. Abbas Afshar & Mohamad Amin Tavakoli & Ali Khodagholi, 2020. "Multi-Objective Hydro-Economic Modeling for Sustainable Groundwater Management," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 34(6), pages 1855-1869, April.
    4. Foster, T. & Brozović, N., 2018. "Simulating Crop-Water Production Functions Using Crop Growth Models to Support Water Policy Assessments," Ecological Economics, Elsevier, vol. 152(C), pages 9-21.
    5. Ifft, Jennifer & Bigelow, Daniel P. & Savage, Jeffrey, 2018. "The Impact of Irrigation Restrictions on Cropland Values in Nebraska," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(2), May.
    6. Palazzo,Amanda & Valin,Hugo Jean Pierre & Batka,Miroslav & Havlík,Petr, 2019. "Investment Needs for Irrigation Infrastructure along Different Socioeconomic Pathways," Policy Research Working Paper Series 8744, The World Bank.
    7. Ellen M. Bruno & Richard J. Sexton, 2020. "The Gains from Agricultural Groundwater Trade and the Potential for Market Power: Theory and Application," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 884-910, May.
    8. Levan Elbakidze & Brett Schiller & R. Garth Taylor, 2017. "Estimation of Short and Long Run Derived Irrigation Water Demands and Elasticities," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-22, January.
    9. Guilfoos, Todd & Garnache, Cloe & Suter, Jordan F. & Merrill, Nathaniel H., 2017. "Efficiency Gains Arising from Dynamic Groundwater Markets," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258438, Agricultural and Applied Economics Association.
    10. Schoengold, Karina & Brozovic, Nicholas, 2018. "The future of groundwater management in the high plains: evolving institutions, aquifers and regulations," Western Economics Forum, Western Agricultural Economics Association, vol. 16(1).
    11. Mukherjee, Monobina & Schwabe, Kurt A., 2014. "Where's the salt? A spatial hedonic analysis of the value of groundwater to irrigated agriculture," Agricultural Water Management, Elsevier, vol. 145(C), pages 110-122.
    12. de Bonviller, Simon & Wheeler, Sarah Ann & Zuo, Alec, 2020. "The dynamics of groundwater markets: Price leadership and groundwater demand elasticity in the Murrumbidgee, Australia," Agricultural Water Management, Elsevier, vol. 239(C).
    13. Aghaie, Vahid & Alizadeh, Hosein & Afshar, Abbas, 2020. "Agent-Based hydro-economic modelling for analysis of groundwater-based irrigation Water Market mechanisms," Agricultural Water Management, Elsevier, vol. 234(C).
    14. Angineh Zohrabian & Kelly T. Sanders, 2020. "The Energy Trade-Offs of Transitioning to a Locally Sourced Water Supply Portfolio in the City of Los Angeles," Energies, MDPI, vol. 13(21), pages 1-19, October.
    15. Elbakidze, Levan & Vinson, Hannah & Cobourn, Kelly & Taylor, R.Garth, 2018. "Efficient groundwater allocation and binding hydrologic externalities," Resource and Energy Economics, Elsevier, vol. 53(C), pages 147-161.
    16. Knapp, T. & Kovacs, K. & Huang, Q. & Henry, C. & Nayga, R. & Popp, J. & Dixon, B., 2018. "Willingness to pay for irrigation water when groundwater is scarce," Agricultural Water Management, Elsevier, vol. 195(C), pages 133-141.
    17. Mani Rouhi Rad & Taro Mieno & Nicholas Brozović, 2022. "The Role of Search Frictions and Trading Ratios in Tradable Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 101-132, May.
    18. Nathaniel H Merrill & Todd Guilfoos, 2018. "Optimal Groundwater Extraction under Uncertainty and a Spatial Stock Externality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 220-238.
    19. Kovacs, Kent & Durand-Morat, Alvaro, 2018. "Optimal Groundwater Management in Response to the Intensity of Lateral Flows," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 267164, Southern Agricultural Economics Association.
    20. Sarah Ann Wheeler & Alec Zuo & John Kandulu, 2021. "What Water are We Really Pumping? The Nature and Extent of Surface and Groundwater Substitutability in Australia and Implications for Water Management Policies," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1550-1570, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:agiwat:v:269:y:2022:i:c:s0378377422001962. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/agwat .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.