A Theoretical Analysis of Economic Incentive Policies Encouraging Agricultural Water Conservation

A conceptual model of a representative irrigated farm is formulated to study farm responses to two economic policies commonly suggested to encourage agricultural water conservation, and to characterize the hydrological and economic circumstances in which these responses provide the desired conservation. The economic policies studied are to increase the irrigator's cost of applied water and to subsidize the irrigator's cost of investing in improved on-farm irrigation efficiency. Comparative statics results demonstrate that increasing the cost of applied water may be a more effectual water conservation policy than subsidizing the cost of improved on-farm irrigation efficiency.