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Water Markets: Insights from an Applied General Equilibrium Model for Extremadura, Spain

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  • Alberto Solís
  • Xueqin Zhu

Abstract

In Extremadura, a southwest region of Spain, water has been traditionally been seen as an abundant resource, but growing irrigation demands under a low price of about 0.01€/m 3 are outstripping the supply of raw water and competing with its other consumptive and non-consumptive uses. To deal with the water scarcity in the region, a water market can be established to achieve the highest value of water use, which may allocate irrigation water to the most efficient users. Hence, a Social Accounting Matrix and Water Accounts (SAMWA) for 2005 is used as a central core to calibrate an Applied General Equilibrium (AGE) model. This model is formulated in the Negishi format which, as a welfare program, can price raw water by its marginal value. The main purpose of this paper is to obtain insights into the potential economy-wide gains from establishing a water market such that this resource is allocated efficiently. The impact of a water market policy is investigated under three scenarios. First, we simulate a decrease in the availability of raw water in Extremadura due to climate change. Second, an investment in a more efficient irrigation technology is considered. Finally, we extend our AGE model by including the amenity services of water and investigate how the willingness to pay of consumers would affect the efficient water allocation. We thus offer policy makers insights into how regional policies could be designed under different circumstances for a better management of raw water in Extremadura. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Alberto Solís & Xueqin Zhu, 2015. "Water Markets: Insights from an Applied General Equilibrium Model for Extremadura, Spain," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 29(12), pages 4335-4356, September.
    • Handle: RePEc:spr:waterr:v:29:y:2015:i:12:p:4335-4356
    DOI: 10.1007/s11269-015-1063-2
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    2. Iwona Kantor-Pietraga & Robert Krzysztofik & Maksymilian Solarski, 2023. "Planning Recreation around Water Bodies in Two Hard Coal Post-Mining Areas in Southern Poland," Sustainability, MDPI, vol. 15(13), pages 1-25, July.
    3. J. Alarcón & L. Juana, 2016. "The Water Markets as Effective Tools of Managing Water Shortages in an Irrigation District," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(8), pages 2611-2625, June.
    4. Teotónio, Carla & Rodríguez, Miguel & Roebeling, Peter & Fortes, Patrícia, 2020. "Water competition through the ‘water-energy’ nexus: Assessing the economic impacts of climate change in a Mediterranean context," Energy Economics, Elsevier, vol. 85(C).
    5. Thomasz, Esteban Otto & Kasanzew, Andrés & Massot, Juan Miguel & García-García, Agustín, 2024. "Valuing ecosystem services in agricultural production in southwest Spain," Ecosystem Services, Elsevier, vol. 68(C).
    6. Ana María Campón-Cerro & Elide Di-Clemente & José Manuel Hernández-Mogollón & José Antonio Folgado-Fernández, 2020. "Healthy Water-Based Tourism Experiences: Their Contribution to Quality of Life, Satisfaction and Loyalty," IJERPH, MDPI, vol. 17(6), pages 1-19, March.

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