Agricultural Water Allocation under Cyclical Scarcity: The Role of Priority Water Rights

Abstract

Water is becoming an increasingly scarce resource worldwide, suggesting that water rationing methods should be revised to improve water allocation efficiency, especially during cyclical scarcity events (droughts). The proportional rule is the most widely used rationing method to allocate water in cases of water scarcity. However, this method fails to achieve Pareto-efficient allocation arrangements. Economic theory and international experience demonstrate that implementing security-differentiated water rights could improve allocative efficiency during cyclical scarcity periods. Moreover, it has been proven that this kind of priority rights regime is an efficient instrument to share risks related to water supply reliability, and can thus be considered as an adaptation measure to climate change. This evidence has enabled the development of an operational proposal for the implementation of security-differentiated water rights in the irrigation sector in Spain, as an alternative to the current rights based on the proportional rule. This proposal draws on the Australian case study, which is the most successful experience worldwide. Nevertheless, the insights obtained from the analysis performed and the proposal for reforming the water rights regime are applicable to any country with a mature water economy.