Capacity sharing enhances efficiency in water markets involving storage

Chi H. Truong and Ross G. Drynan

Agricultural Water Management, 2013, vol. 122, issue C, 46-52

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.

Keywords: Decentralization; Competitive storage; Inter-temporal; Internal spillage; Water allocation; Institution (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:agiwat:v:122:y:2013:i:c:p:46-52

DOI: 10.1016/j.agwat.2013.03.002

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