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Can water pricing policies regulate irrigation use?

Congress: 2008
Author(s): François Molle
François Molle Institut de Recherche pour le Développement 911, Avenue Agropolis BP 64501 34394 Montpellier Cedex 5 France

Keyword(s): water pricing, economic instruments, water policy, quota, efficiency
AbstractThe paper proposes a review of situations where water is scarce and where irrigation schemes are able to distribute water volumetrically, either at the bulk or individual level. Such situations are relatively rare at the world level but they provide the context where volumetric pricing policies can be implemented and can demonstrate their potential for putting demand and use in line with supply. The review provides clear evidence that, instead of administered prices quotas, are almost invariably chosen as the main regulation mechanism. In contrast with the large theoretical literature that has promoted price- based regulation as a key instrument of water demand management, it appears that prices were mostly used to regulate use at the margin, beyond the quota, rather than for rationing scarce water. This is certainly an important role but one that falls short of efficiency pricing and remains limited to those relatively rare schemes where water is supplied volumetrically, on–demand or on arranged demand. The paper then reviews the advantages and limitations of quotas and attempts to explain why they are systematically preferred to pure price-based regulation. If made tradable, quotas or entitlements can be more easily reallocated among users according to criteria of economic efficiency. Such situations still remain rare because there are several cultural, technical and institutional constraints to their development, most notably in developing countries. Finally the paper expands its conclusions to irrigation in general and shows that although much hope has been vested in pricing mechanisms for regulating water use their potential is much lower than is commonly believed.
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