This paper develops Positive Mathematical Programming (PMP) model to determine the optimum cropping pattern and water demand function in six regions of lower part lands of Shirindarre Dam in north Khorasan Province of Iran and then estimates the expected pay for water in each region. The quantity of water supplied from such different water resources as dams, wells, and rivers in different scenarios of wet, normal, and dry years has been calculated. Then The price equilibrium as well as the type of participation of farmers in the water market have been assessed by crossing the water supply and demand functions. The buyer and seller of water, volume of exchanges and exchange value have been calculated as based on a comparison of the expected pay for water and the equilibrium price in the water market. In this study the impact of water pricing on farmers, income, labor demand, consumption of chemical fertilizers and pesticides and as well on the government revenue have been investigated too. The results of the study indicate that the economic value of water has been estimated by 416 and 571 Rials per cubic meter in normal and drought scenarios respectively. These models have been solved through GAMS package under 2007-2008 agricultural data.
JEL Classification: Q12, Q25