Irrigation subsidies and their externalities

Abstract

Subsidising irrigation is a legitimate approach that governments have used to achieve a set of social objectives. Yet it may simultaneously impose negative externalities, especially in the form of environment degradation. Could subsidies be reformed to be less harmful? To answer this question requires an insight into how various kinds of subsidies work, the interplay between subsidies and externalities, and the political complexity of subsidy reform. In this paper these insights are investigated using supply-demand graphs. It is argued in this paper that a broad definition of subsidies should be used, one that includes the implicit subsidies that result from partial cost recovery. It is also shown that even without subsidies, externalities due to irrigation would still exist and that any reform of existing subsidies will counter the positive impact irrigation may have, which may not be a desirable outcome.