Pricing Irrigation Water: A Literature Survey
7 Pages Posted: 20 Apr 2016
Date Written: September 1, 2000
Getting prices right and allocating water efficiently will become increasingly important as demand for food and water increases and as water scarcity becomes more of a problem. Pricing water efficiently will help meet the increasing demand, but what is the best way to make pricing more efficient?
As water scarcity and population pressures increase, more countries are adopting water pricing mechanisms as their primary means of regulating the consumption of irrigation water.
The way to allocate water efficiently is to get the prices right, but how to accomplish this is open to debate. Water pricing methods are sensitive to the social, physical, institutional, and political setting. To assess the costs and benefits of a particular irrigation project, the pricing method must be tailored to local circumstances.
Johansson's survey of the resource economics literature on irrigation services and pricing will be useful for developing comprehensive guidelines for water policy practitioners. He synthesizes accumulated knowledge about the implementation and performance of various water pricing methods used over the past two decades: volumetric pricing (marginal cost pricing), output and input pricing, per area pricing, tiered pricing, two-part tariffs, and water markets.
Theoretical and practical issues will become increasingly important as demand for food and water increases. Pricing water efficiently will help meet that demand, but what is the best way to make pricing more efficient? Many argue that water markets offer a solution, but under what circumstances are water markets viable? What effect will decentralization have on farm production and the rest of the economy? What forces are moving toward decentralization or (re)centralization?
The answers to these questions are complex and often site-specific. To help compare them, Johansson lists case studies, data sources, and relevant methodologies in the appendixes.
This paper - a product of the Rural Development Department - is part of a larger effort in the Bank to improve the efficiency of water use. The study was funded by Rural Development, Development Research Group, and the Bank's Research Support Budget under the research project Guidelines for Pricing Irrigation Water Based on Efficiency, Implementation, and Equity Concerns.
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By Natalie Chun