Designing optimum insurance schemes to reduce water overexploitation during drought events: a case study of La Campiña, Guadalquivir River Basin, Spain

Abstract

In several arid and semi-arid Mediterranean basins, water deficits in irrigated agriculture during drought events are relieved by illegal abstractions from aquifers. Illegal abstractions are largely tolerated by the authorities and are regarded by farmers as a reliable and inexpensive form of insurance against drought. This framework of illegal abstractions is responsible for the structural water deficit that is characteristic of many Southern European regions. The situation is changing with the implementation of River Basin Management Plans and Drought Management Plans, which demand improvement in the quantitative and qualitative status of water bodies, improved surveillance of groundwater resources and more rigorous sanctions for illegal groundwater abstractions. However, these plans raise distribution and equity issues and may not be sufficient to stop illegal abstractions in certain areas. Provided that the new framework is properly enforced, private drought insurance has the potential to stabilise income levels and reduce the incentives for overexploitation during drought events. This paper develops a methodology to estimate the basic risk premium and the potential water savings of private drought insurance. This methodology is based on concatenated stochastic models (rainfall-stock), a decision model and agronomic production functions, and is illustrated through the application of the model in the La Campin˜a agricultural district in the Guadalquivir River Basin, Spain.

Insuring Water Supply in Irrigated Agriculture: A Proposal for Hydrological Drought Index-Based Insurance in Spain

“…There are many factors that can explain why hydrological drought insurance for irrigators has not been implemented in a real-life setting [33,40,41]. Some of these factors relate to information asymmetries between the insurer and the insured, which also affect other types of agricultural insurance schemes:…”

Hydrological drought index insurance for irrigation districts in Spain

“…Traditional schemes, using crop production functions or crop simulation models to assess the economic impact of drought have been proposed in some irrigated regions of Spain (Quiroga et al, 2011;Pérez & Gómez, 2013;Ruiz et al, 2013Ruiz et al, , 2015. Index insurance mechanisms have been proposed in the literature seeking to cover financial risks for water managers (Brown & Carriquiry, 2007;Zeff & Charaklis, 2013) and offering 3 Hydrological drought index insurance for irrigation districts in Spain compatible with voluntary exchanges of water rights.…”

“…At the European Union (EU) level, only Spain has developed a regulatory framework to permit water trading (Easter and Huang, 2014;Rey et al, 2014). Insurance is also a means to manage water supply instability (Pérez & Gómez, 2013;Rey et al, 2015).…”

Hydroeconomic Models as Decision Support Tools for Conjunctive Management of Surface and Groundwater

“…These reserves can help reduce or eliminate water shortages, acting as a "buffer stock" that provides a reliable, although informal, insurance system (Perez and G omez 2013) Moreover, the great natural storage capacity of aquifers can be used to store excess surface water in wet periods, increasing ground water levels for use in subsequent dry periods. This could be achieved by artificial recharge techniques (Chaps.…”

“…CU is also a key strategy for supporting groundwater-dependent ecosystems (Chap. 13; Kløve et al 2011 and2013), as well as for the adaptation of water resource systems to future climate and land use changes (Chaps. 4 and 5; Hanson et al 2012).…”