Market-based water allocation systems have the potential to ensure that scarce water will flow to the user who earns the highest marginal value from that water. However, the number of recorded instances where water supply problems are solved by market-based systems remains limited. This study attempts to identify the decisive factors that motivate farmers’ participation in informal spot water markets in the Rafsanjan aquifer in south-eastern Iran. A two-stage random sampling was carried out in a field survey from November 2008 to February 2009. A logit model is used to test the factors affecting farmers’ decisions to buy groundwater from neighbours who share the same pump. The results show that the technological variables contribute substantially to the participation decision. For example, a decrease in water quality, an increase in the age of the garden, and an increase in the size of the water quota reduce the probability of participation. In contrast, more scattered plots, a higher water flow level from pumping, and a deeper well increase the probability of participation in water markets. Finally, the results suggest that in this area, the participation in water markets is motivated more by profit increasing factors than by farmer socioeconomic characteristics.

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