Sustainable irrigation and the role of economic instruments and their supporting institutions

This paper identifies a number of institutions that are critical for the financial sustainability of irrigation projects. The framework of analysis is based on Williamson's four-levels of institutions (Williamson, O.E., The new institutional economics: taking stock, looking ahead, J of Economic Literature, 38 (September), pp. 595-613, 2000) which are used to highlight the importance of institutions and the problems that arise when implementing institutional change. Examples are provided of institutional reforms and changes that have helped different countries raise both cost recovery and collection rates. A key objective in designing water instruments is to provide farmers and managers assurance regarding the actions of others in the system. Without the appropriate institutions, it is difficult to effectively use economic instruments such as water prices, taxes, or markets to improve the financial sustainability of irrigation projects.