Pricing Unmetered Irrigation Water under Asymmetric Information and Full Cost Recovery

Abstract

Abstract:The objective of this study is to define an efficient pricing scheme for irrigation water in conditions of unmetered water use. The study is based on a principal-agent model and identifies a menu of contracts, defined as a set of payments and share of irrigated area, able to provide incentives for an efficient use of the resource by maximizing social welfare. The model is applied in the case study of the Çukas region (Albania) where irrigation water is not metered. The results demonstrate that using a menu of contracts makes it possible to define a second best solution that may improve the overall social welfare derived from irrigation water use compared with the existing pricing structure, though, in the specific case study, the improvement is small. Furthermore, the results also suggest that irrigation water pricing policy needs to take into account different farm types, and that appropriate contract-type pricing schemes have a potential role in providing incentives to farmers to make irrigation choices to the social optimum.

Assessing the Potential Economic Viability of Precision Irrigation: A Theoretical Analysis and Pilot Empirical Evaluation

“…However, there is little evidence that water pricing affect water uses even when volumetric water price is applied; the main reason water price is not acting as an incentive to MIT adoption, however, is that in Europe water is rarely priced, and, when it is, tariff is just paid for the possibility to use water for irrigation and not for the real amount of water applied [24]. Besides direct incentive effects, water pricing, which is an instrument commonly adopted by local water authorities to recover supply costs [29][30][31], could be also applied to co-finance investments on modern irrigation technologies [22]. Finally, most of the authors agree that the possibility of imposing rules of use, with particular reference to quotas and turns, could favor the adoption of modern irrigation technologies, in order for the farmers to better comply with such type of constraints.…”

Water Authorities’ Pricing Strategies to Recover Supply Costs in the Absence of Water Metering for Irrigated Agriculture

“…To introduce this illustrative case, we have used the profit and cost function obtained in [14]. In this application, we have assumed two levels of water supply costs.…”

“…The water supply costs c(x) are determined based on crop water consumption and unit water cost with respect to each farm type; in this way we estimate the cost of water for each crop, which allows us to determine the total water supply cost for overall irrigated area with regard to the type. The estimated water supply costs include payment to water masters to clean and maintain the secondary canals, as well as the management and distribution of water to tertiary canals to facilitate withdrawal by farmers [14].…”

“…The water tariffs are usually determined ex ante by allowing the WA to estimate the overall irrigated area as farmers pay and sign for irrigated hectare. There are usually cases where a farmer has not paid in advance but irrigates during the irrigation season [14]. Accordingly, recovery of supply costs do not reach the expected level.…”

Water Economics and Policy

“…Pineau et al [18] analyze hydropower water use in major producing countries and review the different economic instruments (royalties and others) used to appropriately distribute the costs and benefits of hydropower to society as a whole. A water pricing scheme for irrigation water in conditions of unmetered water use is the measure that Lika et al [19] evaluate with a principal-agent model. Fang et al [20] apply a computable general equilibrium model to quantify the performance and potential economic impacts of discharge tariffs, and Ahmad et al [21] study the limits of water pricing in a developing country metropolis.…”