Markets, Contracts, and Uncertainty in a Groundwater Economy
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World Bank, Washington, DC
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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.
Palabras clave
SUPPLY OF WATER, HOLDING, SPOT PRICE, MOISTURE, DURABLE GOODS, HIGH IRRIGATION, FLOW, ACCOUNTING, MARKET DISTORTIONS, PARTICULAR DEBT, SPOT MARKETS, INTEREST, GUARANTEES, AGRICULTURAL PRODUCTION, PUMPS, CULTIVATED AREA, INCENTIVE CONSTRAINT, EXCHANGE, OPTION, PROPERTY RIGHTS, AQUIFER, WATER SUPPLY, DEVELOPING COUNTRIES, GROUNDWATER RECHARGE, POLITICAL ECONOMY, SURFACE WATER, WATER ALLOCATIONS, ASYMMETRIC INFORMATION, HIGH LEVELS, GAS, BUDGET CONSTRAINTS, WATER TABLE, RENEGOTIATION, MARKET FAILURE, TAX, TRANSACTION COST, INTERNATIONAL BANK, WATER RESOURCES, MICRO-DATA, DEVELOPING COUNTRY, OPTIMAL CONTRACT, BUDGET, WITHDRAWALS, WATER REQUIREMENTS, CROP PRODUCTION, SEEPAGE, PARTICIPATION CONSTRAINT, MORAL HAZARD, CONTRACT RENEGOTIATION, MARKET TRANSACTION, CONTRACTS, TRADING, OPTIONS, WATER USE, WATER, DEBT, MARKETS, HOUSEHOLD INCOME, RAINFALL, RETURN, WATER SCARCITY, RESEARCH, AQUIFERS, IRRIGATION WATER, LANDOWNER, RISK SHARING, RESERVES, FINANCE, DRIP IRRIGATION SYSTEMS, TAXES, TRANSACTIONS, EMERGING MARKETS, TRANSACTION, STORAGE CAPACITY, RISK NEUTRAL, WATER TRANSFER, LEAD, GOOD, CREDIT CONSTRAINTS, TAX RATE, CLIMATE CHANGE, DROUGHT, DERIVATIVE, FUTURE, CULTIVATION, RETURNS, BILATERAL TRANSACTIONS, GROUNDWATER EXPLOITATION, CONTRACT, SOIL MOISTURE, DRY SEASON, DRIP IRRIGATION, PROPERTY, PROPERTIES, TRANSACTION COSTS, SPOT MARKET, MARKET, BROAD RANGE, EX-ANTE INCENTIVES, WELLS, COORDINATION FAILURE, INSURANCE, RENEGOTIATIONS, WATER AVAILABILITY, GOODS, LANDOWNERS, IRRIGATION SYSTEMS, DURABLE, COAST, INVESTMENT, OUTLET PIPE, PIPE, STATISTICS, IRRIGATION, GROUNDWATER, SHARE, METERS, POVERTY, TRANSACTIONS COSTS, REVENUE, INVESTMENTS, RISK MANAGEMENT, CONTRACT RENEGOTIATIONS, INCENTIVE CONSTRAINTS, INSTRUMENT, RISK AVERSION, CROPPING DECISIONS, DEEP GROUNDWATER, HUMAN DEVELOPMENT