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The Illiquidity of Water Markets

Javier D. Donna & José‐Antonio Espín‐Sánchez

The Review of Economic Studies2026https://doi.org/10.1093/restud/rdag004preprint
FT50AJG 4*ABDC A*
Weight
0.40

Abstract

We investigate the efficiency of a market relative to a non-market institution—an auction relative to a quota—as allocation mechanisms in the presence of frictions. We use data from water markets in southeastern Spain and explore a specific change in the institutions to allocate water. On the one hand, frictions arose because poor farmers were liquidity constrained. On the other hand, farmers who were part of the wealthy elite were not liquidity constrained. We estimate a structural dynamic demand model by taking advantage of the fact that water demand for both types of farmers is determined by the technological constraint imposed by the crop’s production function. This approach allows us to differentiate liquidity constraints from unobserved heterogeneity. We show that the institutional change from an auction to a quota increased total efficiency for the farmers considered. Welfare increased by 23.4 real pesetas per farmer per tree, a 6 % increase in total production relative to the market.

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https://doi.org/https://doi.org/10.1093/restud/rdag004

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@article{javier2026,
  title        = {{The Illiquidity of Water Markets}},
  author       = {Javier D. Donna & José‐Antonio Espín‐Sánchez},
  journal      = {The Review of Economic Studies},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1093/restud/rdag004},
}

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The Illiquidity of Water Markets

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Evidence weight

0.40

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.25 × 0.4 = 0.10
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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