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Abstract
The flexibility of farms to respond to changing economic or
environmental conditions has received attention in recent years,
particularly in the context of changes in the availability and
pricing of irrigation water. This study uses a new unit record
data set of Australian farms and a generalised profit-function
framework to assess the links between farm performance and
water use practices, involvement in water trading and other farm
characteristics. Amongst other findings, the study provides
experimental estimates of the responsiveness of the demand for
irrigation water to price changes and the impact of farmers
either buying or selling water on farm profits, after controlling
for other factors.