INCENTIVES, INSTITUTIONS AND INFORMATION: EVOLVING AGRICULTURAL WATER MANAGEMENT PRACTICES IN AN AREA OF NORTHERN ITALY

A widening discussion is developing in the EU about the application of the Water Framework Directive (60/2000) (WFD) that provides the framework for water regulation in Europe and emphasizes the role of economic instruments in water policy. The objective of this paper is to provide an evaluation of different instruments to deal with the management of water for agriculture, in the perspective of WFD implementation and agricultural price scenarios. The paper focuses on the regulation of mixed source unmetered water and carries out a comparison of flat rate vs. differentiated contracts as the policy instrument. The analysis is based on a combination of linear programming and a principal agent model. The empirical model is applied in an agricultural area of Northern Italy. The results show the feasibility of incentive-oriented policy instruments, even in the less sophisticated form of flat rate area payments. They also show the relevance of agricultural market and policy scenarios in the design of the optimal policy instruments. The adoption of such instruments, however, could require a revision of the role of different institutions involved in water management.