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Abstract
This paper focuses on the economic consequences of droughts for the irrigation sector. We develop a dynamic-recursive
mathematical programming farm model that assumes imperfect mobility of capital and labour as well as rational expectations
about future water availability. The model is calibrated to 12 representative farms belonging to three irrigation communities of
the Guadalquivir Basin (south Spain) and used to simulate the 1991-1997 period, which included 3 years of intense drought. Results
indicate that the drought imposed significant costs on farmers, but show also that water managers partly exacerbated these
costs by allocating excessive amounts of water to irrigators in the abundant years. The model is also used to evaluate the benefits
of a perfect water supply forecast and to simulate the economic gains of a voluntary water banking scheme. Results show that
the benefits resulting from the perfect forecast of water supply 1 year ahead would represent a relative gain of 5%. However,
a voluntary banking system would allow farmers to increase their benefits by 32-82% depending on the supply system.
© 2003 Elsevier B.V. All rights reserved.