Conference paper

This paper presents a new econometric partial equilibrium model of water trade and irrigation activity within the southern Murray-Darling Basin (sMDB). The model exploits a unique data set detailing water availability, water market outcomes, irrigation activity, climate conditions and commodity prices for the sMDB annually over the period 2002-03 to 2016-17. This data is used to econometrically estimate a set of demand functions for water by region and irrigation activity. These demand functions are placed within a spatial equilibrium framework taking into account constraints on inter-regional water trade across the basin. The model is able to simulate the market prices of water allocations and entitlements by region and inter-regional water trade flows along with water and land use by irrigation activity and region. The performance of the model is demonstrated with in and out-of-sample validation tests. The model provides a basis for separating the effects of historical climate, market and policy shocks on the region and for simulating the effects of potential future shocks. 

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