Price Differentiation of Irrigation Service As Adaptive Response To Climate Change. 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. Although economic mechanism such as price differentiation are envisioned to enhance water allocation during droughts, the proportional rule is still the most widespread method applied for rationing irrigation water. This work aims to verify whether 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. Therefore, an experiment was carried out for the largest irrigated area in southern Italy, where both collective and self-supply services from groundwater are deployed. A positive mathematical programming model was implemented in order to simulate the effects of a price differentiation of collective service. The findings show that priority mechanisms have the potential to improve overall economic efficiency in the event of water shortages.