Problems, Principles and Policies
Edited by Phoebe Koundouri, Panos Pashardes, Timothy M. Swanson and Anastasios Xepapadeas
* Rim Lahmandi-Ayed and Mohamed-Salah Matoussi 3.1 INTRODUCTION Regions with a semi-arid and arid climate suﬀer from an acute shortage of water supply. Since the turn of the century, many of these regions have experienced explosive demography and/or economic and urban growth, which have further aggravated the scarcity of the resource. The only viable alternative is to restrain the growth of water demand by sustainable management. Water markets have been suggested as an eﬃcient means to reallocate water. The ﬁrst section of the chapter describes the latent crisis that threatens several countries and regions all around the world, deals with the advantages and drawbacks of the water-market alternative and examines some water-market experiences. The second section deals theoretically with selection through water markets. It focuses on the modelling of water markets in the general case of users with diﬀerent productivities, and determines the conditions that foster water-market activity in terms of water reallocation. Economists have already proposed a wide range of models to emphasize the potential beneﬁts of water markets. Since the pioneering work of Hartman and Seastone (1970) and Howe and Easter (1971), several authors have emphasized the eﬃciency criterion of interregional transfers. This tradition culminates with the paper of Vaux and Howitt (1984) in which a model of interregional trade is built. It is shown that water transfers can be substituted with new supplies mobilization. However, this work has a macro level perspective and a centralized point of view.1 Over the last twenty years,...
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