pricing policies in managing water resources in agriculture: an application of contract theory to unmetered water

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ID: 183961
2013
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Abstract
The paper explores how agricultural water pricing could contribute to lowering water demand when uses are unobserved (asymmetric information). The topic of the paper is justified by the fact that most water authorities worldwide do not control water uses at the farm scale. The study draws inspiration from the pricing policies of a Reclamation and Irrigation Board in Northern Italy. It analyses the optimal design of current tariff strategies with respect both to the actual regulator’s goals and the cost recovery objective of an ideal regulator driven by European Water Framework Directive principles and having full information. The analysis is based on the logic of a Principal-Agent model implemented as a mathematical non-linear programming model. Given the current pricing structure and assuming zero transaction costs, the results show a relevant increase in net benefits for the ideal scenario with respect to the actual one as water use costs increase. Benefits differences between the two scenarios mark a limit in value below which mechanisms able to solve the existing asymmetries between the principal and the agents are economically desirable. The study concludes by showing that the current regulator’s discriminatory strategy (pricing structure) would be better justified with higher levels of cost for water use. However, the existence of non-zero transaction costs related to the control of water uses points to the need for further research in order to analyze incentive mechanisms in the absence of water metering.
Reference Key
viaggi2013waterpricing Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors ;Davide Viaggi;Francesco Galioto;Meri Raggi
Journal Journal of food biochemistry
Year 2013
DOI
10.3390/w5041502
URL
http://www.mdpi.com/2073-4441/5/4/1502
Keywords
irrigation economic analysis water framework directive

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