Security-differentiated Water Pricing as a Mechanism for Mitigating Drought Impacts. Insights from a Case Study in the Mediterranean Basin

Water is becoming an increasingly scarce resource due to growing multi-sector demand and the effects of climate change. During droughts, the proportional rule is the most widespread water allocation method applied in irrigation systems. However, this method fails to guarantee efficient water allocation or to provide a fair method of water allocation. This paper aims to verify whether by replacing the water allocation methods based on a proportional rule with methods based on a priority rule could improve the allocation of water resources and minimize the negative economic impacts of water shortages. The ultimate objective of this research is to design a water pricing scheme capable of guaranteeing efficient water reallocation during drought conditions. Therefore, an experiment was carried out for the largest irrigated area in southern Italy, covered by the Capitanata Reclamation and Irrigation board (CBC). A positive mathematical programming model was implemented in order to simulate the effects of the proposed mechanism. The findings show that priority mechanisms have the potential to improve overall economic efficiency in the event of water shortages. However, results also point to the need for optimal design of a differentiated water pricing scheme.