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Speaker information

Xavier Gine, World Bank

Access to groundwater has been a key driver of agricultural productivity growth and rural poverty reduction in south Asia. Yet, markets for groundwater have not developed everywhere. We develop a contract-theoretical model of groundwater transactions under payoff uncertainty, which arises from unpredictable fluctuations in groundwater availability during the agricultural dry season. Our focus is on the tradeoff between the ex-post inefficiency of seasonal contracts and the ex-ante inefficiency of more flexible water-selling arrangements. We structurally estimate the model using micro data on area irrigated under each transaction type combined with subjective probability distributions of end-of-season borewell discharge collected from over 1,600 well-owners across four districts in southern India. We use the estimates to quantify the contracting distortion and its impact on the development of groundwater markets.

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Seminar paper