Jacoby, Hanan G.Gine, Xavier2016-06-142016-06-142016-06https://hdl.handle.net/10986/24534Groundwater is a vital yet threatened resource in much of South Asia. This paper develops a model of groundwater transactions under payoff uncertainty arising from unpredictable fluctuations in groundwater availability during the agricultural dry season. The model highlights the trade-off between the ex post inefficiency of long-term contracts and the ex ante inefficiency of spot contracts. The structural parameters are estimated using detailed micro-data on the area irrigated under each contract type combined with subjective probability distributions of borewell discharge elicited from a large sample of well-owners in southern India. The findings show that, while the contracting distortion leads to an average welfare loss of less than 2 percent and accounts for less than 50 percent of all transactions costs in groundwater markets, it has a sizeable impact on irrigated area, especially for small farmers. Uncertainty coupled with land fragmentation also attenuates the benefits of the water-saving technologies now being heavily promoted in India.en-USCC BY 3.0 IGOSUPPLY OF WATERHOLDINGSPOT PRICEMOISTUREDURABLE GOODSHIGH IRRIGATIONFLOWACCOUNTINGMARKET DISTORTIONSPARTICULAR DEBTSPOT MARKETSINTERESTGUARANTEESAGRICULTURAL PRODUCTIONPUMPSCULTIVATED AREAINCENTIVE CONSTRAINTEXCHANGEOPTIONPROPERTY RIGHTSAQUIFERWATER SUPPLYDEVELOPING COUNTRIESGROUNDWATER RECHARGEPOLITICAL ECONOMYSURFACE WATERWATER ALLOCATIONSASYMMETRIC INFORMATIONHIGH LEVELSGASBUDGET CONSTRAINTSWATER TABLERENEGOTIATIONMARKET FAILURETAXTRANSACTION COSTINTERNATIONAL BANKWATER RESOURCESMICRO-DATADEVELOPING COUNTRYOPTIMAL CONTRACTBUDGETWITHDRAWALSWATER REQUIREMENTSCROP PRODUCTIONSEEPAGEPARTICIPATION CONSTRAINTMORAL HAZARDCONTRACT RENEGOTIATIONMARKET TRANSACTIONCONTRACTSTRADINGOPTIONSWATER USEWATERDEBTMARKETSHOUSEHOLD INCOMERAINFALLRETURNWATER SCARCITYRESEARCHAQUIFERSIRRIGATION WATERLANDOWNERRISK SHARINGRESERVESFINANCEDRIP IRRIGATION SYSTEMSTAXESTRANSACTIONSEMERGING MARKETSTRANSACTIONSTORAGE CAPACITYRISK NEUTRALWATER TRANSFERLEADGOODCREDIT CONSTRAINTSTAX RATECLIMATE CHANGEDROUGHTDERIVATIVEFUTURECULTIVATIONRETURNSBILATERAL TRANSACTIONSGROUNDWATER EXPLOITATIONCONTRACTSOIL MOISTUREDRY SEASONDRIP IRRIGATIONPROPERTYPROPERTIESTRANSACTION COSTSSPOT MARKETMARKETBROAD RANGEEX-ANTE INCENTIVESWELLSCOORDINATION FAILUREINSURANCERENEGOTIATIONSWATER AVAILABILITYGOODSLANDOWNERSIRRIGATION SYSTEMSDURABLECOASTINVESTMENTOUTLET PIPEPIPESTATISTICSIRRIGATIONGROUNDWATERSHAREMETERSPOVERTYTRANSACTIONS COSTSREVENUEINVESTMENTSRISK MANAGEMENTCONTRACT RENEGOTIATIONSINCENTIVE CONSTRAINTSINSTRUMENTRISK AVERSIONCROPPING DECISIONSDEEP GROUNDWATERHUMAN DEVELOPMENTWorking PaperWorld Bank10.1596/1813-9450-7694