Does water rights trading promote the efficiency of water use? Empirical evidence from pilot water rights trading in China

Abstract

Water rights trading policy is an important economic tool in China's water resource management. Accurately estimating the level of water resource utilization efficiency in experimental areas and impartially assessing the impact of the water rights trading market's operation on water resource utilization efficiency have policy implications for improving water resource governance tools and capabilities. Based on the panel data of 19 provinces (regions) in China from 2010 to 2019, this paper describes the development of a three-stage data envelopment analysis model to measure water use efficiency and the application of the difference-in-differences method based on propensity score matching (PSM-DID) to examine the effect of water rights trading policies on the model. The results indicate that (1) after the introduction of the water rights trading policy, the water use efficiency in the experimental areas improved substantially; (2) the PSM-DID method also confirms this finding, and water rights trading has a positive influence on water use efficiency. The research outcomes of this study can be used to objectively appraise the policy performance of the water rights trading policy and provide a theoretical foundation for its nationwide implementation.