Faysse, Nicolas. 2002. "Can Water Allocation Rules in Irrigation Schemes be Used to Share Risk on Resource Availability between Users?." International Water Management Institute (Working Paper)

Abstract

The research inquires to what extent can users of a CPR share the risk on resource availability between themselves or if the risk
neutral State is bound to intervene to ensure an efficient risk
taking and risk sharing. The study focuses on irrigation schemes
and compares different traditional allocation rules, markets and
insurance systems external to the CPR according to five goals that
the collectivity may want to attain: water valorization, equity,
risk sharing, an optimal collective risk taking and the
diminishing of inter-annual income variability.


A model is developed, with farmers being heterogeneous with
regards to their risk aversion, and with farmers taking into
account the allocation rules and the potential taxes or subsidies
in their cropping decisions. This heterogeneity creates an
opportunity for risk sharing among farmers. Traditional allocation
rules are categorized into ex ante rules, which do not
create any interdependence between farmers' cropping choices, and
ex post rules where farmers acquire returns that are
proportional to what they put under crops. Ex post rules
share risk efficiently between farmers but, because of farmers'
strategic behaviors, it may lead to over-cropping. In such an
uncertain context, the 'Tragedy of the Commons' may thus
correspond to a too big collective bearing of risk which may be
more profitable during average years but which will also be
catastrophic during dry ones. An inquiry made in Tunisia showed
this pattern on an irrigation scheme managed by farmers.


Finally, none of the studied rules can attain the five formerly
defined goals all alone by itself. Nevertheless, ex post
rules can be efficient if associated with a high water price, or
if risk taking rotates among farmers: risk sharing between CPR
users may hence be of interest.