Agriculture Reference
In-Depth Information
renewable resource, and persistent pollution with that of the depletable resource. If the
exploitable resource is abundant, we can take as much as we like and no economic
challenges would be raised. That is not true for water in most cases, because the final
consumption requires many activities that employ other resources which are not
abundant.
Overexploitation and degradation of natural resources such as forests and water
usually happen under the so-called open access situation, in which excludability in
consumption is not established and congestion occurs, leading to deterioration of
economic efficiency and sustainability. The failure of users to incorporate into their
decision making the impacts of their uses on the resource in question is the source of this
“market failure” (or tragedy of commons). How we could convert open access resources
into common property resources, in which formal or informal rules among users are
established so as to achieve sustainable use of resources, is a major challenge for policy
makers.
Proposed remedies from economists' views are those based on market orientation
such as internalisation of environmental costs and benefits into decision making and
employing market mechanisms to make economic water cost explicit to all stakeholders.
Market-based instruments require: first well-defined property rights; second, appropriate
pricing that reflects social costs including scarcity rents and environmental burden; and
third, establishment of effective markets and institutions. Policy measures to internalise
environmental costs, i.e., externalities, involve application of the Polluters Pay Principle
for environmental damage and levies on the extraction of groundwater that is in some
cases classified as a depletable natural resource like petroleum.
Another source of market failure in the case of irrigation water use is the economies
of scale in capital investments. Particularly in the developing countries where paddy field
agriculture is dominated by a large number of small holdings, the governments may have
to play a significant role in enhancing agricultural productivity by means of infrastructure
development, even if that requires a significant amount of financial assistance.
Other problems caused by economies of scale, the analysis of which is a major
purpose of this paper, are discussed in the following sections.
3.2 Criteria in the evaluation of agricultural water management
The Japanese systems of water management stand on intrinsic common property
systems with the support of the government as a kind of property rights regime. In the
next section, we will evaluate the systems according to the following interrelated
questions: first, whether or not the allocation of water is economically efficient, and
second, whether or not the governance is appropriate for securing institutional
sustainability. Focus is placed on the agricultural sector, paddy field agriculture in
particular. Other than the conventional costs of managing the water supply, economic
efficiencies should take into account opportunity costs reflecting the scarcity of resource
endowments and social costs associated with the burden on the environment, and the
costs related to institutional management. Because groundwater use in the Japanese
agricultural sector is very limited as explained above in Section 2, we do not have to
consider the intergenerational allocation of this depletable resource.
The following criteria are the factors that policy makers would have to consider when
they establish strategies for sustainable and economically efficient use of water resources:
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