Markets, Contracts, and Uncertainty in a Groundwater Economy
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 s...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/06/26437790/markets-contracts-uncertainty-groundwater-economy http://hdl.handle.net/10986/24534 |
| Summary: | 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. |
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