Estimating Economic Value of Irrigation Water through Contingent Valuation Method: Results from Bhavani River Basin, Tamil Nadu

Abstract

Water used for irrigation purpose is mainly ‘non-market’ in nature (Freeman III, 2003). Even if the irrigation water is priced, the price does not reflect its ‘true opportunity cost’ which is equivalent to the Hicksian ‘consumer surplus’ measure (Hicks, 1946). Over and above the market price, the irrigation water may generate ‘extra-market benefits’ enjoyed by the users. Since the ‘revealed preference methods’ are not capable of capturing these extra-market values adequately, it is argued that the ‘stated preference method’ could be effectively utilised for estimating the total economic value of irrigation water. The contingent valuation method as a widely used stated preference method can measure the true opportunity cost of irrigation water use – within the framework of Hicksian ‘compensating variation’ and ‘equivalent variation’ measures (Venkatachalam, 2004). The present study makes an attempt to estimate the compensating and equivalent variations for irrigation water. More precisely, the study elicits farmers’ preferences measured in terms willingness to pay (WTP) and willingness to accept (WTA) compensation for ‘voluntary’ exchange of irrigation water within the agriculture sector in the Bhavani river basin, Tamil Nadu. Since the paper exclusively focuses on Bhavani river basin, let us briefly understand the issue of water scarcity associated with this basin. River Bhavani, though perennial, experiences water scarcity problem due to both intra-sectoral and inter-sectoral demand for limited amount of water. The total command area irrigated is about 1,00,098 hectares covered by four different canal systems. The Arakkankottai, Thadappalli, and Kalingarayan canals come under the ‘Old Canal System’ (hereafter, Old System) and the Lower Bhavani Project (LBP) canal comes under the ‘New Canal System’ (hereafter, New System). While the Old System was