Does Water Rights Reform Reduce Water Usage for Agriculture? Evidence From City‐Level Panel Data in China

ABSTRACT Existing policies promoting agricultural water conservation focus mainly on promoting water‐saving irrigation through subsidy policies, but this approach leads to a rebound effect, making obtaining the desired water‐saving result challenging. Moreover, many countries have begun to realize that the market‐oriented allocation of water resources through water rights reform (WRR) may be a more effective way of managing water resources to achieve agricultural water conservation. On the basis of the WRR pilot policy in China, this paper uses an empirical difference‐in‐differences (DID) strategy to analyse whether the WRR can reduce agricultural water use. The empirical results show that the WRR can reduce water use by 7% on average, and this result still holds after contemporaneous policies and alternative outcome measures are considered. The possible mechanism is that the WRR has changed the planting structure for food crops and cash‐crops and promoted water resource transfer from the agricultural sector to the non‐agricultural sector. The heterogeneity analysis indicates that the water‐saving effect of WRR is worse in areas with higher land potential or with better economic conditions. Therefore, the promotion of the WRR needs to consider agricultural production conditions and the economic situation.