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Political Economy and Irrigation Technology Adoption Implications of Water Pricing under Asymmetric Information

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  • Dridi, Chokri
  • Khanna, Madhu

Abstract

We analyze the design of water pricing rules emerging from farmers' lobbying and their implications for the size of the lobby, water use, profits and social welfare. The lobbying groups are the adopters of modern irrigation technology and the non-adopters. The pricing rules are designed to meet budget balance of water provision; we considered (i) a two-part tariff composed of a mandatory per-acre fee plus a volumetric charge and (ii) a nonlinear pricing schedule. Our results show that under either pricing schemes, farmers can organize and affect the outcome of the water schedule design. When only a volumetric fee is levied, the budget balance constraint prevents lobbies from influencing the design of the pricing scheme. In terms of expected welfare, the two-part tariff is preferable to the nonlinear pricing scheme or an inflated marginal cost fee.

Suggested Citation

  • Dridi, Chokri & Khanna, Madhu, 2005. "Political Economy and Irrigation Technology Adoption Implications of Water Pricing under Asymmetric Information," 2005 Annual meeting, July 24-27, Providence, RI 19348, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19348
    DOI: 10.22004/ag.econ.19348
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    References listed on IDEAS

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    1. Chokri Dridi & Madhu Khanna, 2005. "Irrigation Technology Adoption and Gains from Water Trading under Asymmetric Information," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 289-301.
    2. Laffont, Jean-Jacques, 2001. "Incentives and Political Economy," OUP Catalogue, Oxford University Press, number 9780199248681.
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    Cited by:

    1. Sauer, J. & Zilbermann, D., . "Innovation Behaviour At Farm Level – Selection And Identification," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 45.
    2. Trail, Shanelle M. & Ward, Frank A., 2024. "Uniting agricultural water management, economics, and policy for climate adaptation through a new assessment of water markets for arid regions," Agricultural Water Management, Elsevier, vol. 305(C).

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