This paper simulates urbanization under two different water management systems: i) the water parallel pricing system and ii) the water pricing system. The purpose is to discover which water management system is better for agricultural production and household welfare. The main conclusion is that the water pricing system is better than the water parallel system because it will increase the welfare, income and consumption of both urban and rural households. However, under the water pricing system, more water will be reallocated from agricultural sectors to the industrial and service sectors, especially to households; therefore, agricultural outputs will suffer greater losses.


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