| Most literature on water marketing focuses on the expected increase in economic efficiency, but there is little that examines a market's effect on conservation and overall water supplies. It is argued here that a water market, rather than encouraging conservation with the lure of being able to sell saved water, instead encourages more water-intensive farming, thereby causing reservoir levels to fall faster during drought. To test this hypothesis, this study examines one of the most active water markets in the United States: the Lower Rio Grande Valley of Texas. A linear regression analysis shows that a trend towards greater water efficiency in the farm sector stopped in 1986, the same time rules for a regional water market were promulgated. Possible reasons are investigated by simulating farmer crop choices and irrigation use with quadratic and mixed-integer linear programming models run recursively with actual data on inflow and precipitation for 1993 to 1998.;The results suggest that when holders of irrigation rights can lease some of their water to others, overall economic benefits increase; reservoir levels fall faster and farther during drought, the economic incentive to irrigate more efficiently is reduced, and there is a stronger economic push to plant high-profit, water intensive crops. |
