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Cooperation Against Theft - A Test of Incentives for Water Management in Tunisia

Listed author(s):
  • Wided Mattoussi
  • Paul Seabright

This paper tests the contribution of institutions to the promotion of cooperative behavior, taking seriously the endogeneity of the institutions themselves. Theft of water by manipulation of water meters is an important constraint on the implementation of economic pricing policies, particularly in semi-arid regions of the developing world. We show how cooperative management institutions can reduce theft, improving incentives for efficient water use, by inducing peer monitoring by cooperative members. We show in a theoretical model that theft is more likely when prices are high, punishments weak, cooperatives large and the uptake of water-saving technologies low. However, cooperative membership, punishment levels and technology adoption are not exogenous but are chosen by cooperative members in response to conditions that themselves influence incentives for theft. We test the model on data from Tunisia, relying on instruments that proxy for unobservable monitoring costs to deal with the endogeneity of these proximate determinants of theft. The results provide strong confirmation of the ability of well-designed incentives to reduce theft, as well as of the tendency of individuals to adapt their behavior to the level of monitoring costs. Higher monitoring costs have a positive direct effect on the incidence of theft, and a further positive indirect effect by weakening the incentive for farmers to adopt water-saving technologies. But various features of the design of institutions can counteract these effects.

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Paper provided by Economic Research Forum in its series Working Papers with number 491.

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Length: 39 pages
Date of creation: Jun 2009
Date of revision: Jun 2009
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:491
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  7. Loehman Edna & Dinar Ariel, 1994. "Cooperative Solution of Local Externality Problems: A Case of Mechanism Design Applied to Irrigation," Journal of Environmental Economics and Management, Elsevier, vol. 26(3), pages 235-256, May.
  8. Jean-Paul Azam & Jean-Daniel Rinaud, 2000. "Encroached Entitlements: Corruption and Appropriation of Irrigation Water in Southern Pun jab Pakistan)," Development Working Papers 144, Centro Studi Luca d'Agliano, University of Milano.
  9. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
  10. Hermes, Niels & Lensink, Robert & Mehrteab, Habteab T., 2005. "Peer Monitoring, Social Ties and Moral Hazard in Group Lending Programs: Evidence from Eritrea," World Development, Elsevier, vol. 33(1), pages 149-169, January.
  11. Parkash Chander & Louis L. Wilde, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 165-183.
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  15. repec:dgr:rugsom:03e36 is not listed on IDEAS
  16. Parkash Chander, 1998. "A Stronger Measure of Risk Aversion and a General Characterization of Optimal Income Tax Enforcement," Economics Working Paper Archive 399, The Johns Hopkins University,Department of Economics.
  17. Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
  18. Millock Katrin & Salanié François, 2005. "Nonpoint Source Pollution When Polluters Might Cooperate," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-27, July.
  19. Che Yeon-Koo, 2002. "Joint Liability and Peer Monitoring under Group Lending," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-28, July.
  20. Abdulai, Awudu & Glauben, Thomas & Herzfeld, Thomas & Zhou, Shudong, 2005. "Water Saving Technology in Chinese Rice Production - Evidence from Survey Data," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24708, European Association of Agricultural Economists.
  21. James E. T. Moncur & Richard L. Pollock, 1988. "Scarcity Rents for Water: A Valuation and Pricing Model," Land Economics, University of Wisconsin Press, vol. 64(1), pages 62-72.
  22. Jean-Jacques Laffont & Mohamed Salah Matoussi, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 381-399.
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  24. Foltz, Jeremy D, 2003. "The Economics of Water-Conserving Technology Adoption in Tunisia: An Empirical Estimation of Farmer Technology Choice," Economic Development and Cultural Change, University of Chicago Press, vol. 51(2), pages 359-373, January.
  25. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-475, July.
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