The impact of water rights trading on water resource use efficiency: Evidence from China's water rights trading pilots

Abstract

With the increasing conflict between the supply and demand of water resources, enhancing water resource use efficiency has gradually become a focus of attention. As a new way to manage water resources, water rights trading pilots have been implemented in China. It is important to explore the impact of water rights trading on regional water resource use efficiency and possible impact paths. This paper employs a global nonradial directional distance function (GNDDF) model to measure water resource use efficiency, which is more accurate and reliable. To discern the effect of China's water rights trading pilot policy on enhancing regional water resource use efficiency, we apply the regression control method (RCM) for counterfactual analysis and test the possible pathways through which the water rights trading policy affects water resource use efficiency. This article draws the following conclusions. (i) China's overall water resource use efficiency has not reached a high level over the past decade, and water resource use efficiency has exhibited substantial regional disparities. (ii) There is some evidence to suggest that the water rights trading policy may have a positive impact on improving water resource use efficiency in the pilot provinces. However, the improvement effect exhibits regional variations, which are likely attributed to the initial water resource use levels in the pilot provinces and the specific implementation modes of water rights trading. (iii) Water rights trading policies can enhance water resource use efficiency through two pathways, including facilitating reclaimed water reuse and promoting water use restructuring.