Economic drought management index to evaluate water institutions' performance under uncertainty *

Eva Iglesias, Alberto Garrido and Almudena Gómez-Ramos

Australian Journal of Agricultural and Resource Economics, 2007, vol. 51, issue 1, pages 17-38

Abstract: Reservoir management and intertemporal water allocation are critical issues in semiarid regions where agriculture has to confront highly variable rainfall patterns. In this paper, we derive and propose an economic drought management index (EDMI) to evaluate water institutions' performance to cope with drought risk. The EDMI is based on the optimal conditions of a stochastic dynamic optimisation problem that characterises reservoir management. The index's main advantages are its ease of interpretation and breadth of scope, as it incorporates information on hydrological processes, structural constraints, water institutions' rules, and the economic benefits of water use. An empirical application is developed to assess the institutional rules governing water allocation in two different supply systems in Andalusia (southern Spain). Copyright 2007 The Authors Journal compilation 2007 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd .

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