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Abstract
Water scarcity is a critical environmental issue worldwide, especially in arid and
semiarid regions. In those regions, climate change projections suggest further reductions
in freshwater supplies and increases of the recurrence, longevity and intensity of
drought events. At present, one important question for policy debate is the identification
of water management policies that could address the mounting water scarcity problems.
Suitable policies should improve economic efficiency, achieve environmental
sustainability, and meet equity needs. This paper applies an integrated hydro-economic
model that links a reduced form hydrological component, with economic and
environmental components to such issues. The model is used to make a direct
comparison of three water management alternatives, water markets, water pricing and
institutional policies, based on their economic, environmental and equity outcomes. The
analysis is performed in the Jucar Basin of Spain, which is a good natural experiment
for studying the policies to confront water scarcity and climate change. Results indicate
that both institutional and water market policies are good instruments to smooth the
economic damage costs of droughts, achieving almost the same social benefits.
However, the environmental effects of water markets are worrying. Another important
finding is that water pricing is the worst policy option not only in terms of private and
environmental benefits but also in terms of equity.