The Economics of Water, Irrigation, and Development

The post-World War II era has witnessed a drastic increase in irrigation activities that have contributed substantially to the massive growth in agricultural production that enables humanity to feed its doubling population. However, a distinction has to be made between the overall positive contribution of irrigation to agricultural productivity and economic welfare and the significant amount of misallocation and mismanagement of resources that have accompanied the expansion of irrigation. In many cases, water resources have been overdeveloped; there has been overspending on capital; and significant costs in terms of loss of ecosystems, extinction of fish species, and contamination of water sources. This chapter provides an economic perspective on the contribution of irrigation and water resources to past agricultural development and future water resource management. The efficiency of water use is affected by decisions made at many levels. The inefficiencies that can occur at different levels of water management are discussed in this chapter. The analysis first considers irrigation water use by an individual, and then moves to the importance of regional management. The importance of dynamic considerations about the future, and the role of interregional management are then covered. Together, these sections present an economic framework for designing water institutions and policies to improve water resource allocation and prevent some of the current inefficiency in water resource systems. The second part of the chapter provides an overview of the benefits and costs that have been realized through agricultural water and irrigation projects in developing countries. There is a paucity of ex-post integrated assessments of these projects, so the chapter puts the pieces together, combining data with conceptual arguments.