The Impact of water marketization mechanisms on improving water use efficiency: An empirical study from water rights trading in China

Study Region: China. Study Focus: Water resources are one of the indispensable and irreplaceable natural resources in the operation of social and economic sustainable development. When economic measures are used to manage water resources, the market mechanism can be used to fully optimize resource allocation and boost water use efficiency (WUE). While existing research have begun to explore the impact of water rights trading (WRT) on WUE, most remain theoretical, with empirical studies often neglecting time differences in WRT implementation across provinces, leading to unresolved endogeneity issues. To accurately assess the policy effects of WRT, our research constructs a multi-period DID mode that addresses these limitations. New Hydrological Insights for the Regions: This study reveals that WRT significantly improves WUE, with water use per unit of output decreasing by 574.724 units in agriculture, 366.136 units in industry, and 210.770 units overall, demonstrating robustness. The policy effects of WRT require time to materialize, showing both dynamic and spatial sustainability. Technological innovation (TEIN) and water factor mobility (FM) serve as intermediary variables through which WRT optimizes WUE, with TEIN exhibiting a masking effect on WUE improvement. These insights can contribute to improved water resource management globally by guiding the development of tailored water rights policies and strategies that incorporate market mechanisms, foster technological innovation, and improve overall WUE.