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

A useful means for achieving efficient allocation of irrigationwater is to put the right price tag on it. This article discussessome of the more pervasive pricing methods and compares theirefficiency performance, paying special attention to the impactof the cost of implementing each method on its efficiency. Thearticle uses an empirical example to demonstrate numericallythe relative efficiency of the different pricing methods andthe important role of implementation costs. The volumetric,output, input, tiered, and two-part tariff methods all can achieveefficiency, although the type of efficiency varies from onemethod to another. These methods also differ in the amount andtype of information, and the administrative cost, needed intheir implementation. The example indicates that water pricingmethods are most pronounced through their effect on the croppingpattern—more so than through their effect on water demandfor a given crop. Implementation costs have a large effect onwater tariffs and on welfare and hence should have an importantrole in determining the desirable method to use in any givenwater situation.