This paper examines the water allocation system and its effects on water use, users' behavior and on the country's achievement of desirable goals. It investigates efficiency, equity, and sustainability issues that arise under this allocation rule. The current allocation system functions according to a queuing system of priorities, where the urban allocation is found to be the most efficient and least risky allocation, while the ecological sector bears the highest degree of climate risk variability. The rule of priority is applied to crops as well; the non-strategic crops have the least efficient and riskiest allocation. The current system allows the country to secure drinking water supply, but it does not create sufficient incentives for entitlement holders that have priority to increase their water use efficiency, does not guarantee ecosystem health and integrity and does not equally distribute the risk among users. An institutional reform is especially relevant to improve water use performance in the agriculture sector and the country's ability to manage drought. The nonpriority system that allows farmers to exchange their water-use entitlement might increase social welfare of water use.

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