A theoretical model of water and trade

Qian Dang, Megan Konar, Jeffrey J. Reimer, Giuliano Di Baldassarre, Xiaowen Lin, Ruijie Zeng

Research output: Contribution to journalArticlepeer-review

16 Scopus citations

Abstract

Water is an essential input for agricultural production. Agriculture, in turn, is globalized through the trade of agricultural commodities. In this paper, we develop a theoretical model that emphasizes four tradeoffs involving water-use decision-making that are important yet not always considered in a consistent framework. One tradeoff focuses on competition for water among different economic sectors. A second tradeoff examines the possibility that certain types of agricultural investments can offset water use. A third tradeoff explores the possibility that the rest of the world can be a source of supply or demand for a country's water-using commodities. The fourth tradeoff concerns how variability in water supplies influences farmer decision-making. We show conditions under which trade liberalization affect water use. Two policy scenarios to reduce water use are evaluated. First, we derive a target tax that reduces water use without offsetting the gains from trade liberalization, although important tradeoffs exist between economic performance and resource use. Second, we show how subsidization of water-saving technologies can allow producers to use less water without reducing agricultural production, making such subsidization an indirect means of influencing water use decision-making. Finally, we outline conditions under which riskiness of water availability affects water use. These theoretical model results generate hypotheses that can be tested empirically in future work.

Original languageEnglish (US)
Pages (from-to)32-41
Number of pages10
JournalAdvances in Water Resources
Volume89
DOIs
StatePublished - Mar 1 2016
Externally publishedYes

Keywords

  • Decision-making under risk
  • Profit maximization
  • Theoretical model
  • Trade
  • Tradeoffs
  • Water resources

ASJC Scopus subject areas

  • Water Science and Technology

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