Allocative inefficiency and farm-level constraints in irrigated agriculture in Pakistan

Sanval Nasim, Ariel Dinar, Steven Helfand
pssp working paper

In this paper, we estimate the allocative inefficiency of groundwater in Pakistani agriculture and compare it across a set of farm-level constraints, using a panel dataset of rural households. The farm-level constraints include tenure, farm size, access to surface water and location on a watercourse. We use a stochastic approach, based on a system of equations to estimate both the technical efficiency of farms and the allocative efficiency of groundwater use. The allocation of surface irrigation water in Pakistan is fixed per unit of land, so its allocative inefficiency cannot be estimate. Therefore, we will treat surface water as a fixed factor and focus mainly on groundwater. The analysis sheds light on the utilization of irrigation water across a set of farm-specific characteristics. It also provides a basis for a psssible redesign of water policy. The results in this paper constitute the empirical basis for policy work that we will focus on in our future work.