Agricultural policy and the economics of water use in the Riyadh region of Saudi Arabia

The dissertation studies the linkages between agricultural policy and the optimal allocation of water resources in the Riyadh region of Saudi Arabia. Farming in the Riyadh region entirely dependent on its limited groundwater, much of it nonrenewable, drawn from aquifers that have little or no recharge. Government subsidies to the agricultural sector have encouraged farmers to use these scarce groundwater supplies beyond socially optimal use levels.;The dissertation develops a two-stage approach for determining the optimal use of groundwater withdrawals. In the first stage a detailed agricultural sector model is developed that provides a static analysis of the impact of current price policy on the economics of water use at the farm level and calculates the potential loss due to inefficient use of water. A short-run demand function for water is obtained from the district-level models by parametrically varying the amount of water available. This exercise is carried out at both private and social prices for tradeable outputs and inputs. The result is a reduction of the complex farming system structure to a series of demand curves that describe water use both with and without government policy interventions.;In a second stage, a dynamic optimal control model of the water sector is developed to account both for the increasing costs of water extraction in relation to the amount and location of the remaining water stock, and for the presence of backstop technology in the form of the desalination facilities. The model has 12 state variables and 7 control variables and is solved numerically in a dynamic optimization that uses the derived district-level water demand curves from the first stage and aquifer-specific cost functions. Formulated as a planner's optimization of the present value of the producer and consumer surplus from water, the model deduces optimal time paths of water use that reflect a multiperiod competitive equilibrium.;By comparing the demand and cost functions based on private prices with those based on social prices, the model calculates the effect of government policy on the optimal allocation of water resources over time and between competing uses. A comparison is also made between a model that assumes that property rights for the resource are well defined, and one that assumes open-access resource where no exclusive property exists. The outcome of both property-rights regimes at both social and private prices reveals the combined impact of the property-rights regime on the welfare loss from agricultural subsidies.;Static as well as dynamic results indicate that substantial increases in welfare would accompany reforms in agricultural policy. In most part, these improvements would come from the usual gains in efficiency that arise when government policy interventions are removed. More improvements, however, emerge when water property rights are recognized or when water is reallocated away from agriculture and toward high-valued urban and industrial uses.