Policy Research Reports

Pricing Irrigation Water: Focusing on Sustainability




May, 2004


N5. Agriculture, Natural Resources, Environment, and Extractive Industries

Conceptually, farmer performance in terms of efficiency and sustainability is influenced by decision-making environments and their personal characteristics. The way problems and opportunities are dealt with by the farmer is reflected in the decision-making process (categorized to include planning , implementation and control), and meant to influence the technical and biological process on the farm, which in turn determines the farm results. Each of these steps can be only partially controlled. Stochastic elements from the environment also play their parts (Rougoor, et al., 1998). Four features of environmental variables include:
  • Institutional environment, such as regulation of water, land, property rights, land tenure systems, etc.
  • Social environment, such as the composition of the farmer’s family, dependency ratio, etc.
  • Physical environment, including weather and the state of technology.
  • Economic environment, which determines prices of inputs and outputs.
In addition to the environmental factors, personal aspects of farmers such as biography ,motivation and abilities affect decision-making process. Important characteristics and traits associated with management performance include the willingness to learn and the farmer’s decisiveness and self-confidence. Measuring these characteristics is a problem to be addressed in studying farmer performance . In this study, an attempt is made to measure some of these characteristics or use some proxies in order to quantify the relationship between farmers’ personal characteristics and their management performance. It should be noted that, in assessing the quality of a decision, one can use not only outcome-oriented criteria such as efficiency and sustainability, but analysis requires process-oriented criteria as well. In other words, one can judge whether a decision is right before the outcome is apparent by looking at the process that led to the decision. Human decision-making can be characterized by satisfying rather than optimizing behavior and by bounded rationality, rather than by complete rationality. In making a decision, the farmer is bounded by his limited cognitive skills, with respect to the amount of information that he can process. Given those boundaries, he will try to act rational.
Pricing Irrigation Water: Focusing on Sustainability

Research Fellows

Gholamreza Soltani

Professor, Department of Agricultural Economics, Shiraz University,...