The Welfare Effect of Water Market Allocation in Iranian Economy

Administrative allocation of water in Iran currently leads to more conflicts and severe water sectoral competition., Since the administrative water allocation is based on the low tariffs and not on market prices particularly in agricultural sector, the real value of water is not considered in the system of national account and monetary circular flow of economy. While water resources are the direct and indirect primary input of many commodities and services in the economy. One of the main strategies of coping with water scarcity is market-based allocation for making the highest value. The aim of this study is to analysis the welfare effect of water-based market allocation in the Iranian economy. According to backward and forward linkage effect of water sector on the economy, in this study the computable general equilibrium modeling has been used. In order to consider the real value of water, this study has been added raw water as the factor of production in the social accounting matrix. The results show that the creation of water market under water scarcity condition tended to respectively decreases and increases in the welfare of urban and rural households. Furthermore, the top deciles of rural household’s welfare have been increased in comparison to the lower deciles, which indicate the larger share of ownership of lands with water rights in the higher deciles.