Policy makers have taken into less consideration the market mechanism in the allocation of water resources, contrary to its long role and precedent in allocation goods and resources. The market mechanism is used in many regions of world for water management to increase the water scarcity certainly, but historical form of acquiring water resources didn’t lead to a proper market so economic price of water isn’t determined by market equilibrium and isn’t based for transaction. Therefore water allocation among users in many regions in Iran is performed under local government management and often based on political-social regulations instead of economic criteria but this kind of water resources management caused no optimal water allocation in Iran. For this reason and to solve the mentioned problem, this study investigates the irrigation water markets and analyses the economic and social impacts of water markets in the lower part lands of dams in North Khorasan province of Iran. The positive mathematical programming (PMP) models have been developed to estimate the water demand function in six regions and estimate the expected pay for water in each region. Then the economic and social impacts of water markets have been investigated. The results show that establishing of water market will increase the total welfare by 2640 and 1182 million Rials, the total net return of cultivation crops as 12 and 23 percent and total employment by 62 and 32 percent in normal and dry scenario respectively. These models have been solved by CONOPT solver in GAMS package under 2007-2008 agricultural data, which have been acquired by interviews and completion of 187 questionnaires.
JEL Classification: Q12, Q25