Potential gains from water rights trading in the Aral Sea Basin

•The potential gains from water rights trading were analyzed using a hydro-economic model.•Relocation of water from less to more productive users increases economic gains in the basin.•Additional gains of water rights trading decreases when transaction costs increase.•Empowering water stakeholders t...

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Bibliographic Details
Published in:Agricultural water management 2015-04, Vol.152, p.41-56
Main Authors: Bekchanov, Maksud, Bhaduri, Anik, Ringler, Claudia
Format: Article
Language:English
Subjects:
Allocations
Aral Sea
Basins
Costs
Economics
Freshwater
Gain
Hydro-economic model
Inter-catchment and intra-catchment water rights trading
Transaction costs
Water management
Water rights
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Summary:•The potential gains from water rights trading were analyzed using a hydro-economic model.•Relocation of water from less to more productive users increases economic gains in the basin.•Additional gains of water rights trading decreases when transaction costs increase.•Empowering water stakeholders to manage resources is essential for long-term sustainability.•Cooperation and the rule of law are central for long-term economic prosperity in the region. Increasing water demand due to population growth, irrigation expansion, industrial development, and the need for ecosystem improvement under mounting investment costs for developing new water sources calls for the efficient, equitable and sustainable management of water resources. This is particularly essential in the Aral Sea Basin (ASB) where ineffective water management institutions are the primary reason of intersectoral and inter-state water sharing conflicts and lack of incentives for improving water use efficiency. This study examined market-based water allocation as an alternative option to the traditional administrative allocation to deal with water scarcity issues in the ASB. Potential economic gains of tradable water use rights were analyzed based on a newly constructed integrated hydro-economic river basin management model. The analysis differentiates between inter-catchment and intra-catchment water rights trading. The results show that compared to a baseline with fixed water use rights, inter-catchment water rights trading can increase basin-wide benefits by US$ 373–476million. Under intra-catchment trading, gains are still US$ 259–339million, depending on relative water availability. Gains from trade are larger under drier conditions. However, water rights trading carries a series of transaction costs. We find that in case transaction costs exceed US$ 0.05/m3 of water traded there is no additional economic gain from water rights trading. Enforcement of the rule of law, infrastructural improvements, participation of representatives of key water stakeholders in decision making processes, and mutual trust and cooperative relationships among the riparian countries are suggested as means for reducing transaction costs of water rights trading contracts.
ISSN:0378-3774
1873-2283
DOI:10.1016/j.agwat.2014.12.011