Water charging and water saving in agriculture. Insights from a Revealed Preference Model in a Mediterranean basin

The large irrigation expansion of the last 50 years has significantly increased pressures over water resources in EU Mediterranean basins. Under these circumstances water pricing has been especially encouraged, since within the EU policy context it is widely believed that higher water prices reduce water demand. This paper presents a Revealed Preference Model that provides a clear intuition of the logic behind farmers’ choices by using standard economic analysis and implementing a multi-attribute utility function. The model is calibrated for the Agricultural Districts (ADs) in the overexploited Segura River Basin (SRB) in southeastern Spain. Results show that in highly profitable ADs such as those of the SRB, farmers may react to higher prices by reducing their gross margin instead of reducing water use. However, water pricing can still be used to promote the swap of overused and cheap conventional resources by more expensive and underused desalinated water. These results also support the implementation of more ambitious cost-recovery policies.