https://macropaperwarehouse.com/authors/javier-d-donna/Javier D DonnaHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/the-illiquidity-of-water-markets/https://macropaperwarehouse.com/papers/the-illiquidity-of-water-markets/<p>Donna and Espín-Sánchez investigate whether a market (sequential English auction) or a non-market institution (fixed quota) more efficiently allocates an intermediate good — irrigation water — when some buyers are liquidity constrained. The setting is Mula, a city in southeastern Spain, where farmers used an unregulated water auction continuously from 1244 until August 1, 1966, when the institution was replaced by a fixed quota system. This 700-year natural experiment, combined with the fact that water demand for a given crop is pinned down by the crop&rsquo;s production function rather than by farmer wealth, allows the authors to separately identify liquidity constraints from unobserved heterogeneity in productivity.</p>