Determining Economic Value of Irrigation Water: Comparison of Willingness to Pay and Indirect Valuation Approaches as a Measure of Sustainable Resource Use.

Abstract:     
Internalization of natural resource scarcity effects and environmental costs requires pricing of unpriced resources. This paper briefly reviews the current issues in irrigation water pricing, presents an analytical framework for determining economic value of irrigation water using both the direct and indirect techniques, and the results of a case study of a large-scale irrigation project located in the Northern Plains of Thailand. The contingent valuation method has been used for measuring farmer's willingness to pay at the existing and improved water supply conditions as well as for the excessive use of agrochemical. Other indirect methods - marginal value product, farmer's perception on incremental value of water, farmer's ability to pay with and without environmental costs, operation and maintenance costs, cost recovery, marginal construction costs, opportunity costs and scarcity rent are used and are compared. The results indicated that farmers are willing to pay at least equal to the operation and maintenance costs, and are able to pay equal to the marginal value product of water. When opportunity cost of the water is taken into account, the maximum WTP lies quite below indicating the unsustainable use of the resource in the face of growing water scarcity in Thailand. The level of water fees to be imposed for increasing the water use efficiency depends on the prevailing water right conditions and the policy implications for charging irrigation water with and without transfer of such rights are discussed, and potential loss/gain to the farmers, government and the society in each case is estimated.

JEL Classification: Q15, Q25, Q28

working papers series