Irrigation Water Pricing: Technology Adoption, Welfare, and Political Economy

Abstract

The second chapter deals with the political economy of water pricing and its implications on the adoption of modern irrigation technology in the presence of asymmetric information and lobbies. The main results are that under the two-part tariff or the nonlinear pricing, farmers have an incentive to organize and can organize to affect the outcome of water schedule design in their favor; the exception being the inflated marginal cost tariff, which is lobby-independent. In terms of expected welfare, the two-part tariff is preferable to the nonlinear pricing scheme or the inflated marginal cost tariff.