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Water sharing among competing farmers in temperate climate: a study of different pricing mechanisms

Congress: 2008
Author(s): Jean-Philippe Terreaux(1), Mabel Tidball(2)
(1) Lameta et Cemagref – TR Cérès, 50 avenue de Verdun, Gazinet, 33612 Cestas Cedex, France (2) Lameta et Inra - 2 Place Viala, 34060 - Montpellier Cedex 1, France

Keyword(s): economics, econometrics, water, pricing, economic instruments
Article:
AbstractWater sharing among competing farmers in temperate climate: a study of different pricing mechanisms Jean- Philippe Terreaux * and Mabel Tidball ** * Lameta et Cemagref – TR Cérès, 50 avenue de Verdun, Gazinet 33612 Cestas Cedex, France ** Lameta et Inra - 2 Place Viala 34060 - Montpellier Cedex 1, France Corresponding author : jean-philippe.terreaux@cemagref.fr téléphone: 05 57 89 01 64 fax : 05 57 89 08 01 Abstract: Irrigation is one of the principal water uses in temperate countries, as in France. Limiting some consumption of this natural resource by the agricultural sector is therefore one of the more undisputed environmental problems. Moreover a better use of the water resource by farmers is now an explicit aim of the French Agriculture Ministry. Sharing a limited resource to optimize its use may be done using different tools, but it is all the more complicated in France that the resource legally does not belong to anybody. A lot of tools have been long documented in the literature, and sometime used, too much often without much success. But once recognized that "Water has an economic value in all its competing uses and should be recognized as an economic good» (Dublin declaration, 1992), the progresses in different fields of economic science may be used to diminish water “wastes”. Among them, water pricing tools, which are too commonly used, are also well documented. Their objectives are multiple, well established, and sometimes contradictory: allocating water to users who valorise it at the best, guaranteeing an access to this essential good to everybody, recovering costs induced by water extraction/distribution/use, guaranteeing financial stability to providers, being transparent and simple enough to be understandable, being “acceptable” to be applied, etc. The economists are interested essentially in the first four ones that correspond to efficiency, equity and cost recovery objectives. Here we present an original water pricing device, constructed through ‘mechanism design’, i.e. by using game theory models in order that the pricing system is constructed precisely to meet the preceding five objectives (including then intelligibility by water users). We show how introducing some degree of freedom in the system, and using the fact that farmers will keep secret some private information and acquire public information in the course of the plant growth period, may allow the manager of the irrigation area and the farmers to meet these objectives in an acceptable way. Some field data, analysed through econometric tools, confirm this possibility, and the acceptability of such pricing mechanism. At the cost of some formal work in economics, by using the tools of game theory and concepts developed in finance, we think that our preliminary results open new possibilities to a better sharing of water between the different usages, in temperate countries.
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