Economic Effects of Legislative Framework Changes in Groundwater Use Rights for Irrigation

Abstract

In most countries, groundwater resource is a public good, and the entitlement of use rights by the public authority to final users differs according to a country-specific legislative framework. In Italy, groundwater extraction has been regulated through non-tradable private licenses. At present, the public authority needs to reform the current legislative framework, in order to comply with the Water Framework Directive, aimed at the enhancement of the efficiency of the resource use. This research analyzes the effects of reforming the current framework based on non-tradable use rights, by comparing two different liberalization scenarios: an intra-sector market, and a regional market. Although positive economic benefits are generally expected from the liberalization of use rights at aggregated level, we want to analyze whether effects of the legislative framework causes uneven changes on some farm groups. The empirical case study refers to the Fortore river basin (South of Italy), where groundwater covers about 50–80% of current needs, and informal (though illegal) water markets across neighbor farmers already exist. From the findings, there is no evidence that the exchange liberalization of groundwater use rights leads to gains in terms of the value added and the farmer’s revenue. In addition, in the case of an auction system regulated by the public authority, farmers whose water productivity is higher may be able to gain, while others may suffer some losses. In this case, resistances from farmers’ associations towards the legislative framework reform may arise