Incentive Pricing Mechanisms For Irrigation Water Under Asymmetric Information

The study compares the discriminatory pricing strategies of an Italian water authority with a per area basis tariff (no discrimination) and with an alternative discriminatory pricing strategy that faces both the issues of adverse selection and moral hazard. The aim of the study is to analyse the relevant impact on users’ benefits of both the current case study discriminatory strategies and the alternative discriminatory strategy with respect to no discrimination. This allows to criticise water tariffs as an instrument aimed at incentivising efficient water uses under conditions of non-metering. Thus, the study challenges the practicability of a tariff design that is able to deal with biases in information between the regulator and its beneficiaries.