Water Trading with Multiple Water Sources: A Case Study in the Reno Basin, Italy

In this paper, we focus on the implication of the heterogeneity of water sources on the functioning of potential formal water markets. Hence, we investigate how the attribution of water rights in an area where water sources are heterogeneous affects water trading flows. To investigate the issue, we develop a mathematical programming model which is applied to the Reno Basin area, located in the north of Italy, in the Emilia-Romagna region, where farms are either connected to groundwater, or surface water. In the model, the different water sources are then characterised by a different structure of the extraction cost. Moreover, we simulate the potential effect of involuntary cutbacks and local water scarcity that heterogeneously reduces water availability. The results indicate that the presence of different water sources might increase the scope for a potential water market in the area, and in case of high heterogeneity of water availability such an institution would soften the effects of seasonal drought.