Evaluation of Water Market Performance and Its Comparison with Different Water Allocation Rules in Drought Conditions

This study aimed at simulating and evaluating the water market's efficiency and comparing it with the law of optimal allocation of water and the water allocations based on fixed and proportional quotas. The study area was located in the Jiroft sub-basin in the Halil-Rood watershed in Iran and the required data for 2015 were obtained from the Agriculture-Jahad Organization of southern Kerman province. The study was conducted in a method of calculating the benefit from irrigation and minimizing the income losses in the entire region. For this purpose, firstly, 20 and 30 percent restrictions were imposed on use of groundwater resources; then, the effects of optimal allocation law as well as the effects of the allocations based on proportional and fixed quotas on the benefits of irrigation were investigated. Subsequently, through the water market simulation, the market performance was analyzed after the implementation of these rules. To investigate the effect of transaction costs on water trade, the transaction costs were considered as zero, 5, 10, 20 and 30 percent of water price. Based on the results, if the conditions of perfect competition are on the market and transaction costs are zero, the optimal allocation and formation of the water market will result in the same final allocation of water rights and irrigation benefits for the whole region; also, by reducing the availability of water resources, the benefits of water trade will increase while increasing the transaction costs will reduce the volume of water exchanged and the gains from trade as well.