THE IMPORTANCE OF INSTITUTIONAL STRUCTURE IN CONTROLLING AGRICULTURAL RUNOFF1

Abstract: Agricultural runoff, such as dissolved mineral salts and selenium, creates pronounced downstream impacts to agricultural producers and to wildlife. The ability to manage these problems efficiently depends critically on the institutional pricing structure of irrigation water delivery agencies. An important characteristic of irrigation water delivery is whether irrigators pay per unit of water received or make one payment regardless of the quantity of water received. In this study we compare the effectiveness of agricultural runoff reduction policies in two regions that employ these different water pricing structures. We find that reduction policy is more effective and can be achieved at a lower cost when water is priced on a per unit basis and that growers have greater incentive to act on their own to reduce runoff problems. Operating under a per unit pricing system encourages water conservation and runoff reduction, which creates public benefits that are not achieved under the single-payment, fixed allotment method of irrigation water delivery.