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Monopoly power and distribution in fragmented markets : the case of groundwater, Volume 1
 
Author:Jacoby, Hanan G.; Murgai, Rinku; Rehman, Saeed Ur; Country:Pakistan;
Date Stored:2001/07/27Document Date:2001/06/30
Document Type:Policy Research Working PaperSubTopics:Water Conservation; Environmental Economics & Policies; Water Use; Water and Industry; Water Supply and Sanitation Governance and Institutions; Water Supply and Systems; Drought Management; Water Resources Law
Language:EnglishMajor Sector:Water, sanitation and flood protection
Region:South AsiaReport Number:WPS2628
Sub Sectors:Rural Water Supply & SanitationCollection Title:Policy, Research working paper ; no. WPS 2628
Volume No:1  

Summary: Using data from Pakistan's Punjab, the authors examine monopoly power in the market for groundwater - irrigation water extracted using private tubewells - a market characterized by barriers to entry and spatial fragmentation. Simple theory predicts that tubewell owners should price-discriminate in favor of their own share tenants. And this analysis of individual groundwater transactions over an 18-month period confirms such price discrimination. And among those studied, tubewell owners and their tenants use considerably more groundwater on their plots than do other farmers. The authors also provide evidence that monopoly pricing of groundwater leads to compensating - albeit small - reallocations of canal water, which farmers exchange in a separate informal market. Despite the substantial misallocation of groundwater, a welfare analysis show that monopoly pricing has limited effects on equity and efficiency. In the long run, a policy aimed at eliminating monopoly pricing would do little to help the poorest farmers.

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