The impacts of water shortages on Egypt's agriculture continues to receive widespread attention. Several mitigation schemes have been proposed to reduce the potential economic impact of supply reductions of the Nile's waters into Egypt. This paper examines the economic consequences for the Egyptian agricultural economy of application of limited water markets to mitigate the impacts of potential water supply shortages. We address this aim by assembling detailed data on farm budgets, hydrology, institutions and culture in order to develop an integrated catchment framework for analyzing Egypt's use of the Nile. The results of our policy analysis illustrate that a limited form of water trading is one institutionally flexible measure that can mitigate the impacts of water shortages. When water supplies flowing into Egypt are reduced by 10 and 20% per year, adopting limited water trading reduces national farm income losses by 32 and 33% per year, respectively, compared to income losses borne without trading. So water trading grows in importance as a measure to sustain farm income in the face of more severe water shortages. Our findings provide insight for Egyptian policymakers to enable examination of options to mitigate the economic impacts of water supply shortages resulting from drought, climate change, or renegotiated arrangements for sharing the Nile's waters.

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