| Sumario: | A spatial model is developed to ascertain optimal conveyance investment, water allocation, and investment in firm-specific conservation technology. The effectiveness and distributional nature of the optimal solution are compared to projects with well-developed water markets and with spatially uniform water prices, both with suboptimal conveyance. Findings from a simulation of the model have a number of policy implications. They suggest that upgrading present projects through lining of canals and optimal pricing would release water that could be utilized either to increase acreage and output or to meet competing urban and industrial requirements. In addition, negative environmental impacts caused by dysfunctional water projects could be alleviated. The extent of gains from rehabilitation imply that future water policy should be directed toward the improvement of systems that already exist rather than the construction of expensive new water projects.
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