We analyze the problem of allocating irrigation water among heterogeneous farmers when water supply is stochastic. If farmers are risk-neutral, a spot market for water is efficient; while the oft-used uniform rationing system is inefficient, both ex ante and ex post. Indeed, we show that it leads farmers to overexpose to risk, thus making shortages more severe and more frequent in case of drought. We propose instead a regulation by priority classes extending Wilson, and we derive an efficiency result. We characterize the set of farmers that would win or lose from such a reform. We also argue that a system of priority classes may be preferred to a spot market system, because scarcity is easier to manage ex ante than ex post, and because this system facilitates the supply of insurance to risk-averse agents.
Water; Irrigation; Priority Classes; Rationing;
- Q25: Water
- Q15: Land Ownership and Tenure • Land Reform • Land Use • Irrigation • Agriculture and Environment
- D47: Market Design
François Salanié, and Vera Zaporozhets, “Water Allocation, Crop Choice, and Priority Services”, TSE Working Paper, n. 21-1235, July 2021.
François Salanié, and Vera Zaporozhets, “Water allocation, crop choice, and priority services”, Journal of Public Economic Theory, vol. 24, n. 1, February 2022, pp. 140–158.
Journal of Public Economic Theory, vol. 24, n. 1, February 2022, pp. 140–158