Irrigation Development and Environmental Degradation in Developing Countries - a Dynamic Model of Investment Decisions and Policy Options

In the wake of increased environmental and sustainability concerns associated with agricultural development, developing countries are faced with the dilemma of choice between the short-run technological gains and the long-run environmental conservation. A dynamic investment decision model is developed to optimize the use of scarce public investment funds in the management of irrigation water supply, depth to water table and soil salinity. Four major classes of investments with different impacts on the hydrological balance within the Indus basin are considered: (a) expansion of the surface irrigation network, (b) public drainage projects, (c) tax and subsidy policies designed to influence the rate of private groundwater exploitation and (d) investment in improving the efficiency of the existing canal system by reducing conveyance losses. The crop area lost due to water logging and salt accumulation is treated as a damage cost of increasing the application of surface irrigation water. The resulting optimality conditions from the model are used to assess the development and operation of public drainage projects. The model results are compared for areas underlain by fresh and saline groundwater. The model is also used to analyze recent policy debate which has focused on the use of incentives such as subsidized credit, energy subsidies, and electrical grid expansion to accomplish the transfer of tubewell operation from the public to the private sector. Optimal switching conditions for such transfers are derived. The results show that a private farmer's optimal decision will diverge more from the societal optimal decision as more externalities from surface irrigation are accounted for.