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Water 2016, 8(12), 596; doi:10.3390/w8120596

Pricing Unmetered Irrigation Water under Asymmetric Information and Full Cost Recovery

1
Department of Agricultural Sciences, University of Bologna, Viale G. Fanin, 50, 40127 Bologna, Italy
2
International Centre for Advanced Mediterranean Agronomic Studies (CIHEAM) Mediterranean Agronomic Institute of Bari, Land and Water Resources Management Division, Via Ceglie 9, 70010 Valenzano (BA), Italy
*
Author to whom correspondence should be addressed.
Academic Editors: Julio Berbel, Carlos Gutiérrez-Martín and Julia Martin-Ortega
Received: 18 September 2016 / Revised: 3 December 2016 / Accepted: 9 December 2016 / Published: 15 December 2016
(This article belongs to the Special Issue Water Economics and Policy)
View Full-Text   |   Download PDF [1639 KB, uploaded 15 December 2016]   |  

Abstract

The objective of this study is to define an efficient pricing scheme for irrigation water in conditions of unmetered water use. The study is based on a principal-agent model and identifies a menu of contracts, defined as a set of payments and share of irrigated area, able to provide incentives for an efficient use of the resource by maximizing social welfare. The model is applied in the case study of the Çukas region (Albania) where irrigation water is not metered. The results demonstrate that using a menu of contracts makes it possible to define a second best solution that may improve the overall social welfare derived from irrigation water use compared with the existing pricing structure, though, in the specific case study, the improvement is small. Furthermore, the results also suggest that irrigation water pricing policy needs to take into account different farm types, and that appropriate contract-type pricing schemes have a potential role in providing incentives to farmers to make irrigation choices to the social optimum. View Full-Text
Keywords: adverse selection; asymmetric information; incentives; menu of contracts; principal agent model; water pricing adverse selection; asymmetric information; incentives; menu of contracts; principal agent model; water pricing
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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MDPI and ACS Style

Lika, A.; Galioto, F.; Scardigno, A.; Zdruli, P.; Viaggi, D. Pricing Unmetered Irrigation Water under Asymmetric Information and Full Cost Recovery. Water 2016, 8, 596.

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