The Illiquidity of Water Markets: Efficient Institutions for Water Allocation in Southeastern Spain

Donna, Javier and Espin-Sanchez, Jose (2018): The Illiquidity of Water Markets: Efficient Institutions for Water Allocation in Southeastern Spain.

Abstract

We investigate the efficiency of a market institution (an auction) relative to a non- market institution (a quota) as a water allocation mechanism in the presence of frictions, by exploring a particular historical institutional change in Mula, Spain. We estimate a structural dynamic model under the auction accounting for the three main features in the empirical setting: intertemporal substitution, liquidity constraints, and seasonality. We use the estimated model to compute the welfare under auctions, quotas, and the highest-valuation allocation. We find that the institutional change in Mula, from auctions to quotas, was welfare improving for the apricot farmers considered.

• Item Type: MPRA Paper
• Language: English
• Keywords: Institutions, Financial Markets, Demand, Dynamic Bidding, Market Efficiency
• Subjects: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q25 - Water

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