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Efficiency and equity considerations in pricing and allocating irrigation water

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  • Tsur, Yacov
  • Dinar, Ariel

Abstract

Economic efficiency has to do with how much wealth a given resource base can generate. Equity has to do with how that wealth is to be distributed in society. Economic efficiency gets far more attention, in part because equity considerations involve value judgements that vary from person to person. The authors examine both the efficiency and the equity of different methods of pricing irrigation water. After describing water pricing practices in a number of countries, they evaluate their efficiency and equity. In general they find that water use is most efficient when pricing affects the demand for water. The volumetric, output, input, tiered, and two-part tariff schemes all satisfy this condition and can be efficient although whether efficiency is short-run or long-run, first- or second-best, varies. Pricing schemes that do not directly influence water input -- per-unit areas fees for example -- lead to inefficient allocation. But they are usually easier to implement and administer and require less information. The extent to which water pricing methods can effect income redistribution is limited, the authors conclude. Disparities in farm income are mainly the result of factors such as farm size and location and soil quality, but not water (or other input) prices. Pricing schemes that do not involve quantity quotas cannot be used in policies aimed at affecting income inequality. The results somewhat support the view that water prices should not be used to effect income redistribution because water prices are a poor vehicle for reducing income inequality. But pricing schemes that involve water quota rules can reduce income inequality. The authors demonstrate this with a two-rate tiered pricing scheme combined with equal quotas of the cheaper water.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1460.

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Date of creation: 31 May 1995
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Handle: RePEc:wbk:wbrwps:1460

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Related research

Keywords: Water Conservation; Environmental Economics&Policies; Water and Industry; Drylands&Desertification; Economic Theory&Research; Town Water Supply and Sanitation; Water Supply and Sanitation Governance and Institutions; Water Conservation; Water and Industry; Environmental Economics&Policies;

References

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  1. Feldstein, Martin S, 1972. "Distributional Equity and the Optimal Structure of Public Prices," American Economic Review, American Economic Association, vol. 62(1), pages 32-36, March.
  2. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  3. Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June.
  4. Seagraves, J.A. & Easter, K. William, 1982. "Pricing for Irrigation Water," Economic Reports 8445, University of Minnesota, Department of Applied Economics.
  5. Sampath, Rajan K., 1992. "Issues in irrigation pricing in developing countries," World Development, Elsevier, vol. 20(7), pages 967-977, July.
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Citations

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Cited by:
  1. Håkan Tropp, Malin Falkenmark and Jan Lundqvist, 2006. "Water Governance Challenges: Managing Competition and Scarcity for Hunger and Poverty Reduction and Environmental Sustainability," Human Development Occasional Papers (1992-2007) HDOCPA-2006-13, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
  2. Nuworsoo, Cornelius & Golub, Aaron & Deakin, Elizabeth, 2009. "Analyzing equity impacts of transit fare changes: Case study of Alameda-Contra Costa Transit, California," Evaluation and Program Planning, Elsevier, vol. 32(4), pages 360-368, November.
  3. Hussain, Intizar, 2004. "Have low irrigation service charges disadvantaged the poor?," Conference Papers h033989, International Water Management Institute.
  4. Msangi, Siwa & Howitt, Richard E., 2006. "Income Distributional Effects of Using Market-Based Instruments for Managing Common Property Resources," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25247, International Association of Agricultural Economists.
  5. Anonymous, 2003. "Water Rights Arrangements in Australia and Overseas," Commission Research Papers 31899, Productivity Commission.
  6. Janmaat, John, 2004. "Calculating the cost of irrigation induced soil salinization in the tungabhadra project," Agricultural Economics, Blackwell, vol. 31(1), pages 81-96, July.
  7. Bhim Adhikari, 2007. "Property Rights and Natural Resources: Socio-Economic Heterogeneity and Distributional Implications of Common Property Resource Management," Working Papers id:840, eSocialSciences.
  8. Huang, Qiuqiong & Rozelle, Scott & Howitt, Richard E. & Wang, Jinxia & Huang, Jikun, 2006. "Irrigation Water Pricing Policy in China," 2006 Annual meeting, July 23-26, Long Beach, CA 21241, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Cai, Ximing & McKinney, Daene C. & Rosegrant, Mark W., 2001. "Sustainability analysis for irrigation water management: concepts, methodology, and application to the Aral Sea region," EPTD discussion papers 86, International Food Policy Research Institute (IFPRI).
  10. Schrecongost, Alyse & Staatz, John M. & Diallo, Boubacar Cisse & Yade, Mbaye, 2004. "Water Pricing as a Tool for Integrated Water Resource Management: A Synthesis of Key Issues for Rural West Africa," Food Security International Development Policy Syntheses 11272, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  11. Janmaat, John, 2005. "Water applications and Pigouvian taxes to control irrigation-induced soil degradation," Journal of Development Economics, Elsevier, vol. 76(1), pages 209-230, February.
  12. Manuel Mart�n Rodr�guez & Francisco Javier Sáez Fernández & Juan Alberto Aragón Correa & El�as Melchor Ferrer & Noelina Rodr�guez Ferrero, 2002. "Evaluation of irrigation projects and water resource management: a methodological proposal," Sustainable Development, John Wiley & Sons, Ltd., vol. 10(2), pages 90-102.
  13. Saraiva, Joao Paulo & Pinheiro, Antonio Cipriano, 2007. "A Multi-Criteria Approach for Irrigation Water Management," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 8(1), January.
  14. Sur, Mona & Umali-Deininger, Dina, 2003. "The Equity Consequences Of Public Irrigation Investments: The Case Of Surface Irrigation Subsidies In India," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25853, International Association of Agricultural Economists.

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