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Inefficient Water Pricing and Incentives for Conservation

Author

Listed:
  • Ujjayant Chakravorty
  • Manzoor H. Dar
  • Kyle Emerick

Abstract

Farmers often buy water using fixed fees—rather than with marginal prices. We use two randomized controlled trials in Bangladesh to study the relationship between marginal prices, adoption of a water-saving technology, and water usage. Our first experiment shows that the technology only saves water when farmers face marginal prices. Our second experiment finds that an encouragement to voluntarily convert to hourly pumping charges does not save water. Taken together, efforts to conserve water work best when farmers face marginal prices, but simply giving an option for marginal pricing is insufficient to trigger water-saving investments and reduce irrigation demands.

Suggested Citation

  • Ujjayant Chakravorty & Manzoor H. Dar & Kyle Emerick, 2023. "Inefficient Water Pricing and Incentives for Conservation," American Economic Journal: Applied Economics, American Economic Association, vol. 15(1), pages 319-350, January.
    • Handle: RePEc:aea:aejapp:v:15:y:2023:i:1:p:319-50
    DOI: 10.1257/app.20210011
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    References listed on IDEAS

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    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    2. Anderson, Michael L., 2008. "Multiple Inference and Gender Differences in the Effects of Early Intervention: A Reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects," Journal of the American Statistical Association, American Statistical Association, vol. 103(484), pages 1481-1495.
    3. John A. List & Azeem M. Shaikh & Yang Xu, 2019. "Multiple hypothesis testing in experimental economics," Experimental Economics, Springer;Economic Science Association, vol. 22(4), pages 773-793, December.
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    Cited by:

    1. Pauline Pedehour & Marianne Lefebvre, 2023. "Combining digital technologies and incentives for water conservation: A Q-method study to understand preferences of French irrigators," Post-Print hal-04626643, HAL.
    2. Soumi Chandra & Roderick M. Rejesus & Jose M. Yorobe, 2026. "Effects of Alternate Wetting and Drying on Water Savings and Rice Yields in The Philippines," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 70(1), pages 147-164, January.
    3. J. V. Meenakshi, 2026. "Managing Groundwater Irrigation in India," Agricultural Economics, International Association of Agricultural Economists, vol. 57(2), March.
    4. Zappalà, Guglielmo, 2024. "Adapting to climate change accounting for individual beliefs," Journal of Development Economics, Elsevier, vol. 169(C).
    5. Hagerty, Nick & Zucker, Ariel, 2025. "Price Incentives for Conservation: Experimental Evidence from Groundwater Irrigation," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361141, Agricultural and Applied Economics Association.
    6. Soumya Balasubramanya, 2025. "Groundwater Use in Agriculture in South Asia: The Role of Technology," Agricultural Economics, International Association of Agricultural Economists, vol. 56(3), pages 474-484, May.

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    More about this item

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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