Models of water market mechanisms and an illustrative application to the Middle East

The growing demand by countries in the eastern Mediterranean over the waters of the Jordan and Yarmuk Rivers, and the highly depleted coastal and mountain groundwater reservoirs, raise the need to explore ways and means to ameliorate existing and expected water scarcity. Economists have for some time proposed ways towards more efficient exploitation of existing water supplies, specifically by employing market incentive mechanisms in order to encourage voluntary water sharing among countries and regions. Such trading schemes may involve two or more countries. It can be shown that such schemes - given any initial assignment of property claims to water resources - can often lead to increases in the welfare of the countries concerned. The paper proposes two specific mechanisms for international markets in water claims in the eastern Mediterranean region, in which parties voluntarily engage in such trades, as they would expect to gain real benefits from these transactions. Simulation exercises with real data show that - as is true for any opening of markets to international trade - that all parties in the region might benefit to a greater or lesser degree from auctions of water.