Markets, contracts, and uncertainty in a groundwater economy

Xavier Gine, Hanan G. Jacoby, Xavier Gine and Hanan G. Jacoby
Authors registered in the RePEc Author Service: Xavier Gine and Hanan Jacoby

No 7694, Policy Research Working Paper Series from The World Bank

Abstract: Groundwater is a vital yet threatened resource in much of South Asia. This paper develops a model of groundwater transactions under payoff uncertainty arising from unpredictable fluctuations in groundwater availability during the agricultural dry season. The model highlights the trade-off between the ex post inefficiency of long-term contracts and the ex ante inefficiency of spot contracts. The structural parameters are estimated using detailed micro-data on the area irrigated under each contract type combined with subjective probability distributions of borewell discharge elicited from a large sample of well-owners in southern India. The findings show that, while the contracting distortion leads to an average welfare loss of less than 2 percent and accounts for less than 50 percent of all transactions costs in groundwater markets, it has a sizeable impact on irrigated area, especially for small farmers. Uncertainty coupled with land fragmentation also attenuates the benefits of the water-saving technologies now being heavily promoted in India.

Keywords: Hydrology; Water and Food Supply; Climate Change and Agriculture; International Trade and Trade Rules; Regulatory Regimes; Social Policy; Common Property Resource Development; Legal Products; Judicial System Reform; Legislation; Legal Reform; Microfinance (search for similar items in EconPapers)
Date: 2016-06-06
New Economics Papers: this item is included in nep-agr, nep-cta and nep-env
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