We use TERM-H2O in analysing the effects of the Government buying back water from irrigators in the Southern Murray-Darling Basin (SMDB) and thereby increasing river flows. TERM-H2O is a dynamic multiregional computable general equilibrium model containing water accounts. Controversially, our results suggest that buyback would increase economic activity in SMDB. Although a scheme of environmentally useful size would sharply increase the price of irrigation water, there would be little effect on aggregate SMDB farm output. Instead, farm resources would be reallocated between activities. Because farmers are owners of water rights, they would benefit from the price increase induced by buyback.
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Dixon et al. (2011) studied this question.
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