A few thoughts on fair, efficient and sustainable management of agricultural water Warsaw – 14 Sep 2011 David Zetland Senior Water Economist Wageningen.

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A few thoughts on fair, efficient and sustainable management of agricultural water Warsaw – 14 Sep 2011 David Zetland Senior Water Economist Wageningen University

The end of abundance... Agriculture diverts most water High consumption (plus spillovers) Increasing ag/urban/enviro demand Fixed/falling supply (quality & quantity) Efficiency requires reallocation Fairness recognizes existing use rights Sustainability means no shortages

All-in-auctions can help AiAs reallocate water according to value. AiAs balance supply & demand. AiAs establish a local price for water. AiAs recognize existing property rights. AiAs can be used within a community. AiAs can include new demands.

How AiAs work Water rights must be quantified and assigned to individuals. Permanent rights produce income (annual flows) – cf. Australia. The known quantity of flows are put into an auction (all in). Those flows are allocated to high bidders; the price they pay depends on everyones bids. Revenue goes to owners of rights. Conveyance matters!

For example Farmers A, B and C each own 2 units of water. Six units are put into the AiA. A, B and C bid. Bids: A (4, 5, 8), B (10, 10, 3) & C (1, 2, 6) Bids are ordered: 10, 10, 8, 6, 5, 4, 3, 2 & 1 Six highest are accepted; price set to 7 th bid. A gets 3 units; B gets 2 units; C gets 1 unit. A pays 3; B pays nothing ( 6- 6); C gets 3.

This research project has received funding from the European Communitys Seventh Framework Programme (FP7/ ) / grant agreement n° – Project EPI-WATER Evaluating Economic Policy Instrument for Sustainable Water Management in Europe. Thank you! AiA paper: Water markets in Europe: My book: The End of Abundance: Economic solutions to water scarcity