The Impacts of Arable Land per Farmer on Water Markets in China

Water trading markets have been introduced in many countries as a means to alleviate water scarcity. However, the performance of water markets varies greatly across different countries, and in only very few countries do they work well. In this study, a two-sector water rights trading model is developed and applied to a case study in China. The results suggest that arable land per farmer is a key factor that affects the performance of water markets in China. This is positively correlated with traded water volume, with the market’s economic efficiency, and with the social welfare the market brings. Although the model simulation ignores other factors, this problem can be solved by selecting a suitable research area. These findings suggest that water markets may be less likely to be effective in countries with small arable land per farmer.