The Relative Efficiency and Implementation Costs of Alternative Methods for Pricing Irrigation Water

A useful means for achieving efficient allocation of irrigation water is to put the right price tag on it. This article discusses some of the more pervasive pricing methods and compares their efficiency performance, paying special attention to the impact of the cost of implementing each method on its efficiency. The article uses an empirical example to demonstrate numerically the relative efficiency of the different pricing methods and the important role of implementation costs. The volumetric, output, input, tiered, and two-part tariff methods all can achieve efficiency, although the type of efficiency varies from one method to another. These methods also differ in the amount and type of information, and the administrative cost, needed in their implementation. The example indicates that water pricing methods are most pronounced through their effect on the cropping pattern, more so than through their effect on water demand for a given crop. Implementation cost have a large effect on water tariffs and on welfare and hence should have an important role in determining the desirable method to use in any given water situation.