Market-based groundwater resources allocation mechanism: An inter-sectoral water exchanges programming analysis

Abstract

This study aims to analyze the effects of local water market formation in a limited region of the Gavkhuni Basin, located in the center of Iran. An economic optimization mathematical model, called ‘inter-sectoral water exchanges programming’ (IWEP), is developed to address the study objectives. The proposed model seeks to maximize the net benefit of participating agents in the water market mechanism. This model can determine the scope of production activities and the monthly volume of water exchange through different technical methods of water transfer. Results demonstrate that the agriculture sector contributes to an increase in the productions of the agriculture industries and building industries through selling its surplus water. Although farm agents sell only 1% of their groundwater permits to industrial agents, the total net benefit of the agents is increased by more than 30%, compared to when the water market is not implemented. The shared aquifer method, based on common pool groundwater resources, is identified as a suitable technical method for water transfer in the groundwater markets. Finally, the socio-hydrological analysis of groundwater exchanges reveals that the inter-sectoral water market at the local scale can increase the region's employment rate by 45% and mitigate more pressure on the aquifer to meet water demands in the industry sector. These results clarify the efficient role of market-based groundwater allocation approach under water scarcity conditions. • Inter-sectoral water exchanges programming (IWEP) model is developed to analyze the economic impacts of the groundwater exchanges. • The IWEP model determines the optimal production amount of different agricultural and industrial products under techno-economic simulations. • The superiority of the market-based water allocation mechanism is confirmed in the face of water scarcity. • The shared aquifer method is proposed as a suitable technical method for water transfer in local groundwater markets. • The positive role of the inter-sectoral water market mechanism in socio-hydrological issues are clarified by adopting adaptive control policies.