Inequality and rules in the governance of water resources

Abstract

This paper considers two types of farmer, with unequal land endowments, who voluntarily contribute to a joint project for the maintenance of an irrigation network. The collective output (water) is distributed according to some allocation rule and used by each farmer in combination with land to produce a final good. The analysis shows that the initial degree of inequality affects the allocation rule that maximises the amount of water collectively provided. Specifically, two forces act in opposite directions. The first ‘effort-augmenting’ force pushes the distribution of water towards the agent with the higher return to water in the attempt to maximise the aggregate level of effort. This is the prominent force when efforts are highly substitute. If efforts display some degree of complementarity, the effort mix, alongside with aggregate effort, becomes important. A second ‘effort-mix’ force then emerges, that favours more egalitarian or even progressive water allocation rules.