Improving the ability of a water market to efficiently manage drought

Characklis, Gregory W.; Griffin, Ronald C.; Bedient, Philip B.

doi:10.1029/1998wr900094

Cited by 47 publications

(49 citation statements)

References 8 publications

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“…This policy is typical for dry regions such as the Mediterranean Basin Region, the South-Western US and the Far East (Characklis et al 1999;Molle and Berkoff 2006;Hoyer 2010). Satisfactory water allocation between the municipal and the agricultural sectors, subject to their rights, has become a crucial problem (World Bank 1999, Chapter 8, p 85;Megdal et al 2009).…”

Section: The Quarrel Between the Agricultural And The Urban Sectorsmentioning

confidence: 98%

Water Allocation Between the Agricultural and the Municipal Sectors Under Scarcity: A Financial Approach Analysis

Braude

Hauser

Sinuany‐Stern

et al. 2015

Water Resour Manage

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A model examining the National Water Wealth (NWW) and its allocation between the municipal sector and the agricultural sector, where water value is defined as the present value of Water Rights, is presented. Five factors are considered: (i) uncertainty of water supply; (ii) population growth rate; (iii) the effect of time on NWW without new water production; (iv) agency costs, and; (v) production of new waters. The work is based on the model by Jensen and Meckling (J Finance Econ. 3:305-360, 1976), dealing with the effects of agency costs on the value of public companies. Agency costs are subject to conflicting interests between managers, shareholders and bondholders. In the water economy agency, costs stem from a divergence of interests between the government, the agricultural and the municipal sectors. Uncertainty of supply reduces water wealth of both sectors, with a stronger adverse impact on water wealth of the agricultural sector. Our model shows how production of new waters can Water Resour Manage (2015) 29:3481-3501 have contributive effects on national water wealth. The modeling demonstrates the option of reducing the overall uncertainty of water supply and production of new waters which leads to favorable effects on the national water wealth. AbbreviationsCpd t Agency costs of debt Cpg t Agency costs of owner's equity Cpt t Total agency costs Egwr t Expected groundwater recharge quantity F The extent of the Water Commissioner's lack of identification with the agricultural sector Fx Maximal F for each period Jr Constant ratio between the average discount rate for the two sectors (Rv t ) and the discount rate of the municipal sector (Rm t ) Lun t Relative uncertainty of supply imposed on the agricultural Nwh t It is Nww t including the present value of desalination Nww t National Water Wealth Nww t (Cpt t ) NWW assuming agency costs Pg Fixed positive rate of population growth Qh t Present value of desalination Qhy t Annual constant average quantities of water generated from desalination Qm t Water allocation for the municipal sector Rag t (Cpg t ) Discount rate of the agricultural sector assuming agency costs of owner's equity Ra t Discount rate of the agricultural sector Rf t Risk-free discount rate Rh t Discount rate of desalination Rm t Discount rate of the municipal sector Rm t (Cpd t ) Discount rate of the municipal sector assuming agency costs of debt Rv tWeighted average discount rate of the two sectors Rv t (Cpt t )Weighted average discount rate of the two sectors assuming agency costs Va constant quantity of water per period allocated to the agricultural sector from the period t+1 onwards Va(Cpg t ) Fixed average amount of water allocation per period (assuming agency costs of owner's equity) for the agricultural sector from period t+1 onwards Vg t Water quantity that the Water Commissioner sees as "his own" Vo t Water quantity that the Water Commissioner does not see as "his own" Vo t (Cpg t )Water wealth of the agricultural sector assuming agency costs of owner's equity Wsa t Agricultural sec...

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Section: The Quarrel Between the Agricultural And The Urban Sectorsmentioning

confidence: 98%

Water Allocation Between the Agricultural and the Municipal Sectors Under Scarcity: A Financial Approach Analysis

Braude

Hauser

Sinuany‐Stern

et al. 2015

Water Resour Manage

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“…In the past few decades, water markets have been proposed as a policy instrument to improve the efficiency of water use, becoming an effective and relevant mechanism in addressing water shortage problems in different regions of Australia, California and Chile [3,[72][73][74][75]; indeed, by providing a price for water markets to make the opportunity cost of water explicit to users, promoting voluntary transfers from less efficient users to those who could use water more productively and providing incentives for irrigators and other water users to preserve water and adopt water-saving technologies [76,77].…”

Section: Concluding Remarks and Future Researchmentioning

confidence: 99%

Water Markets in Spain: Performance and Challenges

Palomo-Hierro

Gómez‐Limón

Riesgo

2015

Water

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Law 46/1999 incorporated formal water markets into the Spanish legal and regulatory framework, allowing spot water markets and the creation of water banks. The implementation of water markets in Spain aimed at improving the efficiency of water use by reallocating water towards uses with higher added value. However, the performance of water markets in Spain has been rather disappointing, since they have been operative only during drought periods, and even under these extreme scarcity situations, trading activity counted for less than 5.0% of total water use. The narrowness of the market suggests that there are some barriers hampering their effective functioning. This paper examines the evolution and performance of water markets in Spain, relying on a transaction costs analysis framework. This analysis allows the identification of the main factors impeding water markets from operating effectively as a water reallocation tool. This analysis also provides some guidelines on how to overcome these obstacles and, thus, how to improve the efficiency of water use.

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“…Several articles dealing with such tools have been published, e.g. for integrated river basin management to simulate the economic impacts of policies in drought periods (Characklis et al, 1999;Booker et al, 2005), to quantify the economic value of stream flow (PulidoVelazquez et al, 2006(PulidoVelazquez et al, , 2008, for policy options and water allocation (Letcher et al, 2004), for trade-offs between competing uses (Burke et al, 2004), for analysis of the impact of climatic changes (Tanaka et al, 2006), and for trade-offs between efficiency, equity and sustainability in the design of water programs (Ward and Pulido-Velazquez, 2008). IWRM drives individual sectors to coordinate actions and collaborate with each other and enhances stakeholder participation, transparency and cost effective local management (Mylopoulos and Kolokytha, 2008).…”

Section: The Need Of Integrated Water Resources Managementmentioning

confidence: 99%

Screening of sustainable groundwater sources for integration into a regional drought-prone water supply system

Stigter¹,

Monteiro

Nunes

et al. 2009

Hydrol. Earth Syst. Sci.

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Abstract. This paper reports on the qualitative and quantitative screening of groundwater sources for integration into the public water supply system of the Algarve, Portugal. The results are employed in a decision support system currently under development for an integrated water resources management scheme in the region. Such a scheme is crucial for several reasons, including the extreme seasonal and annual variations in rainfall, the effect of climate change on more frequent and long-lasting droughts, the continuously increasing water demand and the high risk of a single-source water supply policy. The latter was revealed during the severe drought of 2004 and 2005, when surface reservoirs were depleted and the regional water demand could not be met, despite the drilling of emergency wells.For screening and selection, quantitative criteria are based on aquifer properties and well yields, whereas qualitative criteria are defined by water quality indices. These reflect the well's degree of violation of drinking water standards for different sets of variables, including toxicity parameters, nitrate and chloride, iron and manganese and microbiological parameters. Results indicate the current availability of at least 1100 l s −1 of high quality groundwater (55% of the regional demand), requiring only disinfection (900 l s −1 ) or basic treatment, prior to human consumption. These groundwater withdrawals are sustainable when compared to mean annual recharge, considering that at least 40% is preserved for ecological demands. A more accurate and comprehensive analysis of sustainability is performed with the help of steady-state and transient groundwater flow simulations, which account for aquifer geometry, boundary conditions, recharge and discharge rates, pumping activity and seasonCorrespondence to: T. Y. Stigter (tibor.stigter@ist.utl.pt) ality. They permit an advanced analysis of present and future scenarios and show that increasing water demands and decreasing rainfall will make the water supply system extremely vulnerable, with a high risk of groundwater salinization and ecosystem degradation.

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Improving the ability of a water market to efficiently manage drought

Cited by 47 publications

References 8 publications

Water Allocation Between the Agricultural and the Municipal Sectors Under Scarcity: A Financial Approach Analysis

Water Allocation Between the Agricultural and the Municipal Sectors Under Scarcity: A Financial Approach Analysis

Water Markets in Spain: Performance and Challenges

Screening of sustainable groundwater sources for integration into a regional drought-prone water supply system

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