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Optimal subsidization for the adoption of new irrigation technologies

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  • Mattoussi, Wided
  • Mattoussi, Foued
  • Larnaout, Afrah

Abstract

Cost-sharing subsidies partially cover the fixed costs of water-saving technologies, promoting their adoption as one of the major irrigation water demand management tools that improve on-farm irrigation system efficiency and potentially free up more water for higher-value uses in water-scarce areas. In this study, we investigate the optimal subsidization scheme in the presence of adverse selection problems where the farmer’s wealth is her private information using a theoretical model of a centralized regulatory structure. In the model, we show that the first-best investment levels can be implemented when the regulator has enough resources for subsidization. Otherwise, the outcome depends on which farmer – the high-wealth farmer or the low-wealth one – contributes more to the social welfare when confronted with their first-best investment levels. Particularly, the model’s findings suggest that an optimal subsidization scheme might involve either high or low wealth farmer’s investment level being downward distorted from their first-best levels. Furthermore, in some circumstances, if the wealth disparity is sufficiently large, it is optimal to subsidize high wealth farmers only. Overall, prioritizing economic efficiency may help conserve scarce irrigation water, but it may also conflict with social equity by denying some farmers access to public subsidies.

Suggested Citation

  • Mattoussi, Wided & Mattoussi, Foued & Larnaout, Afrah, 2023. "Optimal subsidization for the adoption of new irrigation technologies," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1126-1141.
    • Handle: RePEc:eee:ecanpo:v:78:y:2023:i:c:p:1126-1141
    DOI: 10.1016/j.eap.2023.04.020
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric information; Centralized water management; Irrigation water; Water-saving technology; Subsidization scheme;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • 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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