The hypothesis of a rebound effect as a consequence of water saving investments is taken analogically from the Jevons paradox models in energy economics. The European Commission (EC) alert about the consequences in water stressed regions that are investing heavily in modernization of irrigation networks and systems. This paper reviews the literature, linking water savings with water diversion and water depletion, both from theoretical models and empirical evidence from the published research. In order to increase knowledge of this phenomenon, a new empirical case study is presented based on a survey of 36,000 ha of recently modernized irrigated areas in the Guadalquivir basin (southern Spain). The results of the case study illustrates the conditions that may avoid rebound effect, although the results of the available empirical evidence and the published theoretical research are diverse and lead to contradictory results. Further research is therefore needed to determine the causes and solutions of water saving investment impacts and the possible speculative rebound effect.

This paper develops a general preference model to explain farmers’ decisions. Contrary to better known and most commonly used simulation models, the one presented in this paper allows to calibrate, simulate and explain farmers’ decisions without assuming linear preferences (as in many multi criteria decision models) or unobservable implicit cost functions (as in positive mathematical programming models). The model is calibrated for crop decisions in the Genil Cabra irrigated area in the Guadalquivir valley (South Spain) as the resulting empirical model is used to study how farmers react by adjusting these decisions when efficiency in the use of water is improved under different scenarios regarding water use rights. The main conclusion of the paper is that the potential water savings from enhancing irrigation technique (636 m3 ha–1) are overcome by increasing water demand due to higher per drop water productivity when sunflower is replaced by maize. For that reason water price increases and/or reduction of water use rights is a necessary condition to convert water savings through improved efficiency into lower water use and better conserved water sources.

In recent decades, the use of economic instruments has been promoted as a way to improve water demand management, required due to the difficulty of further supply increases. Against this backdrop, this paper analyses the potential of water banks as a type of water market that can provide institutional flexibility in the allocation of water resources among different users. Research has involved an extensive review of the literature, which has allowed us to identify different types of water banks that operate around the world, as well as an analysis of the experiences of water banks implemented to date, in order to assess the performance of this economic instrument in improving water management. This has provided evidence that water banks, if properly implemented, can be a useful tool for improving governance of water resources. Finally, the analysis has enabled us to propose a number of guidelines on how to improve the implementation of water banks in different countries around the world.