Water Markets: Insights from an Applied General Equilibrium Model for Extremadura, Spain

A.F. Solis, X. Zhu

Research output: Contribution to journalArticleAcademicpeer-review

11 Citations (Scopus)


In Extremadura, a southwest region of Spain, water has been traditionally been seen as an abundant resource, but growing irrigation demands under a low price of about 0.01 €/m3 are outstripping the supply of raw water and competing with its other consumptive and non-consumptive uses. To deal with the water scarcity in the region, a water market can be established to achieve the highest value of water use, which ma allocate irrigation water tot he most efficient users. Hence, a Social Accounting Matrix and Water accounts (SAMWA) for 2005 is used as a central core to calibrate an Appplied General Eauilibrium (AGE) model. This model is formulated in the Negishi format which, as a welfare program, can price raw water by its marginal value. The main purpose of this paper is to obtain insights into the potential economy-wide gains from establishing a water market such that this resource is allocated efficiently. The impact of a water market policy is investigated under three scenarios. First, we simulate a decrease in the availability of raw waer in Extremadura due to climate change. Second, an investment in a more efficient irrigation techjnology is considered. Finally, we extend our AGE model by including the amenity services of water and investiate how the willingness to pay f soncumers would affect the efficient water allocation. We thus offer policy makers insights into how reginal policies could be designed under different circumstances for a better management of raw water in Extremadura.
Original languageEnglish
Pages (from-to)4335-4356
JournalWater Resources Management
Issue number12
Publication statusPublished - 2015


  • resource
  • benefits
  • quality
  • demand

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