Does the Institutional Failure Undermine the Physical Design Performances of the Solar Water Pumping Systems in Rural Nepal

The mountainous hinterland in rural Nepal lacks a fundamental social infrastructure. For example, the lack of electricity causes water provision difficulties, especially in mountainous areas where villagers, especially women and children, often spend a considerable amount of time just conveying water to their homes. To overcome this challenge, a subsidy policy for the installation of a solar-photovoltaic water pumping system (SWPS) has recently been implemented nationwide in Nepal. The Nepali government's tight financial constraints require that the installation process is both economically and technologically sound. However, the institutional design of the current subsidization policy is price-distortionary and potentially induces the installation of inefficient systems. By collecting original field data from 38 wards in all seven regions of Nepal, this paper measures the SWPS's technical efficiencies and then identifies relevant economic policies that will enhance the performance of the SWPS. Our results show, inter alia, that a higher dependency on financial support from the government is associated with excessive investment in the SWPS.