Transactions Matter but They Hardly Cost: Irrigation Management in the Kathmandu Valley
This study estimates the transaction costs entailed in maintaining Farmer Managed Irrigation Systems (FMIS) in Nepal based on a case study of 60 irrigation systems in the Kathmandu valley. It analyzes the factors influencing transaction costs and compares these costs with the production cost in agriculture. The findings show that the main elements in transaction costs are time spent watching, waiting, and negotiating over water use. Time spent on transactions is relatively low for FMIS, amounting to 5 percent of the total time required for the production of crops. Transaction time costs are higher for households cultivating land downstream of a canal compared to households cultivating upstream. A comparison of transaction time costs in terms of crop seasons shows time costs for winter crops to be three times higher than that for summer crops. The total value of output per hectare is significantly affected by transaction costs, reliability of the irrigation facility, and infrastructure quality. However, free riders pose a problem for collective action. Controlling free-riding or deviant behavior would therefore improve institutional efficiency and reduce ex-post transaction costs.
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