Working Paper BETA #2020-14

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Title : More market, more efficiency? Water market impacts on water use efficiency in the Australian agricultural sector

Author(s) : Simon de Bonviller, Phu Nguyen-Van, Anne Rozan

Abstract : Water markets emerged as economic tools to deal with water scarcity. By reallocating existing water resources instead of using costly engineering projects to extend the existing supply, they are expected to increase the efficiency of water resources allocation. In this article we question empirically the impacts of water markets on the efficiency of agricultural production, as defined by a stochastic frontier approach. Using regional data on agricultural production and climatic factors, we analyze the link between the existence of water markets, the intensity of water trade and the efficiency of agricultural production in Australia, home to some of the most developed water markets in the world. We find that the existence of water markets in a region is associated with higher agricultural production efficiency, but no significant relationship is identified between the intensity of water trade and efficiency.

Key-words : water markets; stochastic frontier; technical efficiency in agricultural production; Murray-Darling Basin

JEL Classification : Q56; Q25; Q15