A mathematical programming model applied to the study of water markets within the Spanish agricultural sector

Spanish irrigated agriculture uses about 80% of all the nation's available water resources. The need to increase the economic efficiency of current us es of water in the agricultural sector is perceived as the top priority of the country's national water policy. In Spain surface water is centrally al located among competing users based on allocation criteria dictated by the Water Law. The complete absence of price or market signals is a major obsta cle to induce irrigators to use water more efficiently. Water markets withi n the agricultural sector is a promising, though scarcely analyzed in Spain , solution to increase its economic efficiency. This research is an attempt to evaluate probable water transfers among farmers and irrigation district s as well as water price equilibria resulting from different water market a rrangements. Three interconnected mathematical programming models permit th e simulation of water use at the farm level and water market arrangements i n the Guadalquivir Valley (Spain). Results show that water markets would be highly dependent on the level of transaction costs and on the relative red uctions of water allotments due to non-overlapping drought cycles among wat er districts.