Efficiency, equity and cost recovery implications of water pricing and allocation schemes in developing countries
Rhodes, G.F.J.; Sampath, R.K.
Canadian Journal of Agricultural Economics 36(1): 103-117
1988
ISSN/ISBN: 0008-3976 DOI: 10.1111/j.1744-7976.1988.tb03264.xDocument Number: 384189
Six alternative methods of allocating and pricing irrigation water used in developing countries are compared and ranked on the bases of allocative efficiency in production, equity in the distribution of income, and cost recovery to the provisioning authority. Several pricing and nonpricing allocation methods are compared, both between and among these categories. Comparisons and rankings are based on measures of efficiency, equity and cost recovery derived within the framework of a Cobb-Douglas production system. It is found that nearly unique rankings prevail, but that the rankings depend crucially on the relative capital intensities between small and large producers. Rankings presented provide significant information to people choosing among alternative resource allocation methods. Given the objective reality that capital intensity is higher on small farms in many developing countries, if the goals of the governments are to achieve efficiency, equity and cost recovery, then volumetric pricing is superior to all other methods. If volumetric pricing is not feasible among the three other methods, acreage pricing is superior to output and input taxation, and output taxation is superior to input taxation. Thus, the overall policy implication is that the current practice of distributing irrigation proportionally according to the size of holding, with virtually no or minimal charges for the supply of water in many developing countries such as India, Pakistan and Egypt, is neither economically efficient nor equitable, given the current economic realities.