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The illiquidity of water markets: Efficient institutions for water allocation in southeastern Spain

Javier Donna and José-Antonio Espín-Sánchez ()

No 60, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We investigate the efficiency of a market institution (an auction) relative to a non- market institution (a quota) as a water allocation mechanism in the presence of frictions, by exploring a particular historical institutional change in Mula, Spain. We estimate a structural dynamic model under the auction accounting for the three main features in the empirical setting: intertemporal substitution, liquidity constraints, and season- ality. We use the estimated model to compute the welfare under auctions, quotas, and the highest-valuation allocation. We find that the institutional change in Mula, from auctions to quotas, was welfare improving for the apricot farmers considered.

Keywords: Institutions; Financial; Markets; Demand; Dynamic; Bidding; Market; Efficiency (search for similar items in EconPapers)
JEL-codes: D02 D53 G14 L11 L13 Q25 (search for similar items in EconPapers)
Pages: 111 pages
Date: 2021-04
New Economics Papers: this item is included in nep-reg
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