Economic regional impacts of water transfers: the role of factor mobility in a case study of the agricultural sector in the Balearic Islands

Using a CGE model for the Balearic Islands, we simulate the effects of an agricultural water market in the farming sector facing reductions in the water endowment. The market lessens the negative effects on farming communities of short-term water restrictions associated with cyclical droughts. However, in scenarios of permanent reductions, such as those envisaged by global warming predictions or those that result from the implementation of the European Water Framework Directive, a water market may aggravate the negative effects of water shortage. Therefore, the paper shows that generalizations cannot be made about the effects of water markets on farming communities