Javier D. Donna Publications

We investigate the efficiency of a market relative to a non-market institution—an auction relative to a quota—as allocation mechanisms in the presence of frictions. We use data from water markets in southeastern Spain and explore a specific change in the institutions to allocate water. On the one hand, frictions arose because poor farmers were liquidity constrained. On the other hand, farmers who were part of the wealthy elite were not liquidity constrained. We estimate a structural dynamic demand model by taking advantage of the fact that water demand for both types of farmers is determined by the technological constraint imposed by the crop’s production function. This approach allows us to differentiate liquidity constraints from unobserved heterogeneity. We show that the institutional change from an auction to a quota increased total efficiency for the farmers considered. Welfare increased by 23.4 real pesetas per farmer per tree, a 6 % increase in total production relative to the market.

For centuries, irrigation communities in south-eastern Spain were socially stable and economically efficient. In this article, we show how these self-governing institutions persisted by resolving conflicts over scarce resources with flexible punishment for water theft. We argue that variable penalties for violating irrigation rules provided social insurance to farmers during droughts. We develop a dynamic model in which judges trade off crime deterrence and social insurance, and test its predictions using a novel dataset on water theft in the self-governed irrigation community of Mula, Spain, from 1851 to 1948. For the same offence, we show that recidivists were punished more harshly than first-time offenders. When the defendant was wealthy, as indicated by the honorific title don, or the victim was poor, judgements were stricter.