Returns to Public Irrigation Development

Abstract

Recently, returns to public investment, in general, and irrigation investment, in particular, have received critical attention from economists (Young, Martin). Two of the important, interrelated issues are (a) how to measure beneficial impacts of irrigation projects and (b) who should pay for this public investment. Once we know the magnitude of benefits created and the beneficiaries, we should be able to recommend who should pay for this investment and how much they should pay. For simplicity, we classify the beneficiaries of public irrigation into two major groups, producers and consumers. Most studies (Freeman, Keleta, U.S. Water Resources Council, U.S. Department of the Interior, and references cited in Young, Young and Gray, and Martin) on returns to irrigation emphasize production gains from irrigation. The gains enjoyed by consumers are typically omitted, the exception being Martin's work. The implicit assumption here is that the relevant commodity demand curves are perfectly elastic. As Martin argues, this assumption may be valid for a particular project, but not for the general equilibrium context taking into account all the projects undertaken in a period. Thus, the proper demand curve to use is not perfectly elastic, but downward sloping. For a valid evaluation of benefits of public irrigation, one should account for both consumer and producer surpluses. Doing that will provide us with objective criteria concerning who should pay how much for irrigation investment. Thus, the specific objectives here are (a) to derive analytical expressions for measuring consumer and producer surpluses when public irrigation investment shifts the supply function for commodities; and (b) to derive expressions for the exact distribution of gains between consumers and producers. I Consumers' and Producers' Surpluses with Irrigation