Determinants of willingness to pay for groundwater: insights from informal water markets in Rafsanjan, Iran

This study highlights the methodological challenges in determining the value of water in informal water markets. As the decision to participate in water markets is unlikely to be random, self-selectivity is an important issue for an unbiased estimation of the participating farmers’ revealed willingness to pay. The relevance of these issues is illustrated for an informal irrigation water market in Iran. A two-stage random sampling was carried out in pistachio-growing farms which are irrigated by water from the Rafsanjan aquifer in Iran during 2008–2009. A Heckman sample selection model shows that the real willingness to pay can be less than the observed prices in an informal water market.