Centre for Development Economics
Department of Economics, Delhi School of Economics


Inefficient Water Pricing and Incentives for Conservation 


Ujjayant Chakravorty  

Tufts University and Toulouse School of Economics

Thursday, 17 October 2019 at 3:05 P.M.

Venue: AMEX Room (Second Floor)

Department of Economics, Delhi School of Economics

All are cordially invited

Climate change is expected to increase water scarcity. Water is mostly used in farming. Yet, agricultural water use all over the world is characterized by the absence of marginal prices. Efforts to fix this inefficiency by pricing water on the margin have met with little success. We use two randomized controlled trials in Bangladesh to study the link between marginal prices and water conservation. We use a simple water conservation technology — a perforated pipe that is designed to save water in rice farming. Our first experiment shows that the technology only saves water in villages where farmers pay a marginal price for water, but not when they pay fixed seasonal charges. Our second experiment tries to address this incentive problem. We encourage marginal prices by randomly distributing debit cards that can be used to pay volumetric prices for irrigation water. We find that this intervention causes farmers to place more value on the water-saving technology. Demand for the technology becomes less price-sensitive. These results suggest that digital payments for water can align incentives and lead to behavioral changes which encourage conservation.

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