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Can Water Allocation Rules in Irrigation Schemes be Used to Share Risk on Resource Availability between Users?

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Type: Working Paper
Author: Faysse, Nicolas
Date: 2002
Agency: International Water Management Institute
URI: https://hdl.handle.net/10535/4418
Sector: Agriculture
Water Resource & Irrigation
Region: Africa
Subject(s): water resources
game theory
allocation rules
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."

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