Analysis of social network effects on water trade in an informal water market

Abstract

This paper proposes a novel agent-based model (ABM) to assess actual informal water market (IWM) trade—a highly common form of reallocating water globally, but where analysis is challenging due to data paucity. Because, typically, there is not an integrated or centralized institution coordinating transactions in IWMs, social networks and communications between farmers play a key role. This makes applications of ABMs in the informal space appealing and useful. Survey and interview data are used for the model development via a sample of farmers in Mojen Area, Iran. Also, in the final model, some critical human behaviors (e.g. adaptability and self-interest) are described in the form of parameters and formulas, with optimum values calibrated based on the Mojen sample as well as making possible a detailed assessment of the effects on water transaction and farmers’ profit margins. The result of the simulation reveals that IWM trade frees up water for use by other farmers in the Mojen area, especially when stronger social networks are in place where the average number of water transactions will be increased—about 50%. The presence of IWMs also contributes to a more stable cultivation area in dry years, where water trading helps protect perennial crops that have become an increased production system choice in recent years. Further, informal water markets help farmers to optimally use water supply in order to deal with lower rainfall years and fulfil water needs during higher rainfall years due to increasing cultivation areas.