Can Water Price Improve Water Productivity? A Water-Economic-Model-Based Study in Heihe River Basin, China

Water demand management through price and market mechanisms is crucial for agricultural water management. However, how to set an appropriate remains unclear due the uncertainty regarding response of changes complexity hydro-economic system. Thus, this study developed a water-economic model examine both issues in Heihe River Basin. The empirical results revealed that basin’s currently price-inelastic, with value −0.26, but at 0.27 yuan/m3, elasticity gained. At tipping point, economic output decline by up 10.2% 1.6%, respectively, while productivity increases 7.2%. It noteworthy reallocation land resources from sectors non-agricultural facilitated change main contributor towards improvement. This signifies importance managing integrated framework improve future. Our contributes literature suggesting future policies water-demand should consider pricing encourages saving high-value uses order increase productivity.