Water scarcity, prices and quotas: a review of evidence on irrigation volumetric pricing
2009
Molle, Francois
Underpricing of irrigation water is frequently identified as a primary cause of excessive use of water for irrigation. Higher prices are believed to have the potential to promote conservation. Changes in user behavior are predicated on a quantitative relationship between water charges and the volume use, but volumetric management is quite rare in practice. This paper reviews irrigation schemes that combine conditions of water scarcity and volumetric pricing, either at the bulk or individual level, and provides clear evidence that scarcity is almost invariably dealt with through the definition of quotas. In contrast to the large theoretical literature that has promoted price-based regulation as a key instrument of water demand management, it appears that prices are mostly used to regulate use at the margin, beyond the quota, rather than for rationing scarce water. This is an important role but one that falls short of efficiency pricing. The advantages and drawbacks of quotas are discussed, and an interpretation of why they are selected in practice is given.
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