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 uses 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 allocated among competing users based on allocation criteria dictated by the Water Law. The complete absence of price or market signals is a major obstacle to induce irrigators to use water more efficiently. Water markets within 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 districts as well as water price equilibria resulting from different water market arrangements. Three interconnected mathematical programming models permit the simulation of water use at the farm level and water market arrangements in the Guadalquivir Valley (Spain). Results show that water markets would be highly dependent on the level of transaction costs and on the relative reductions of water allotments due to non‐overlapping drought cycles among water districts.