| Reservoir management and intertemporal water allocation are critical issues in semiarid regions where agriculture has to confront highly variable rainfall patterns. In this paper, we derive and propose an economic drought management index (EDMI) to evaluate water institutions' performance to cope with drought risk. The EDMI is based on the optimal conditions of a stochastic dynamic optimisation problem that characterises reservoir management. The index's main advantages are its ease of interpretation and breadth of scope, as it incorporates information on hydrological processes, structural constraints, water institutions' rules, and the economic benefits of water use. An empirical application is developed to assess the institutional rules governing water... |
