Economic Benefits Resulting From Irrigation Water Use: Theory and an Application to Groundwater Use

Traditional economic analysis using a crop production function approachhas assumed that all variable factors, including irrigation water, arefully employed in the crop production process. However, this paper firstdemonstrates that economic benefits of irrigation water areoverestimated when the crop production function, and therefore theirrigation water demand function, is expressed in terms of irrigationwater supplied, rather than consumptive irrigation water use. Second,the paper demonstrates that the magnitude of the estimation bias isproportional to the rate of irrigation water losses through leaching,runoff and evaporation. Consequently, the model misspecification problemwould lead to increased irrigation water use and reduce incentives forfarmers to adopt improved irrigation technologies.