Transactions Matter, but Hardly Cost: Irrigation Management in Kathmandu Valley

Abstract

"This paper estimates the transaction cost in maintaining Farmers Managed Irrigation System (FMIS) in Nepal. It analyzes the factors influencing the transaction cost and compares it with the production cost in agriculture. This study is based on a case of Kathmandu valley covering 60 irrigation systems. The findings of the study show that the main element of transaction time is watching, waiting and negotiating which constitutes more than 92 percent of the total transaction time. The study also shows that the transaction time is relatively low for FMIS amounting to 5 % to that of total time required for the production of crops. The transaction time is higher for the households cultivating the land at downstream of the canal compared to the households cultivating the land at upstream of the canal. In terms of crops transaction time for the cultivation of winter crops is three times higher than that of the summer crop. The total value of output per hectare is significantly affected by transaction cost, reliability of the irrigation facility and infrastructure quality. However, there is an advantage of being a free rider and hence there seems to be a problem in collective action. If the institutions could somehow control for free-riding or deviant behavior, then presumably it would improve institutional efficiency and reduce expost transaction cost."