In the context of irrigation management, corruption and rent-seeking are endemic in many countries. Due to power and information asymmetries, water may not be allocated efficiently but rather according to prevailing social structures, thus enabling certain farmers to increase their share of water in irrigation systems. Opportunistic behaviour of the more influential stakeholders in large irrigation systems may lead to significant water losses and negatively impact economic development in rural areas. GIZ has taken an institutional approach to cope with corruption and rent-seeking in irrigation agriculture through the establishment of water user associations (WUAs) that allocate water in a fair, transparent and economical way.
Description and origin of the term
In economic theory, rent-seeking is a phenomenon that is observed when the opportunity to capture monopoly rents provides firms with an incentive to use scarce resources to secure the right to become a monopolist. The term can be traced back to the “public choice” economists Gordon Tullock and Ann Osborn Krueger who argue that rent-seeking causes considerable waste of resources. In water-scarce environments which are increasing vulnerable to climate change, the disproportionate capture of water resources in an irrigation system can lead to low motivation and productivity of farmers, and even result in conflict over scarce water resources.
An often overlooked facet of water provision in large irrigation schemes affected by water-scarcity is the role of institutions, i.e. “the rules of the game” (North, 2005), which may often lack information transparency. If a water provision scheme does not signal accountable and transparent information to all farmers involved in the scheme, situations such as “moral hazards” or “hold-up” problems may occur. “Moral hazards” in water management arise if the provider of water resources for irrigation agriculture conveys a service on behalf of the client that includes a certain element of decision-making important for the economic activities of the client. If the provider makes certain observations the client does not have access to due to a lack of transparency and accountability, the provider may be prone to use this “hidden information” for his personal advantage, e.g. to receive side-payments for water delivery for a service he is already contractually obliged to. If an irrigation system consists of more economically and politically powerful farmers, the service provider may provide preferential access to scarce resources to select political and/or economic cronies. This “moral hazard” may lead to a degeneration of the whole irrigation system with low motivation on the providers’ side to change the institutional setting, as well as low motivation of the less influential clients to keep up their economic activities. In addition, the incentives to use water more efficiently are completely absent in a case of “moral hazards” in irrigation agriculture.
“Hold-up” problems occur when two actors are dependent on each other. For example, if a farmer has invested in technology and labour to carry out his agricultural business, he will be completely dependent on a reliable service from the water providers. If the provider then asks for (even small) briberies to deliver the water on time (which may also arise due to an information advantage of the provider), the farmer is caught in a “hold-up” problem. Corruption can therefore severely hamper the economic success of the farmer and his motivation to carry out his business.
Theoretical approach of GIZ
The above mentioned problems are prevalent in irrigation agriculture within poorly developed institutional settings. GIZ takes the New Institutional Economics approach to cope with the challenges arising from “information asymmetry” that may lead to “moral hazards” and “hold-up” problems. GIZ is guided by the eight BMZ principles that shape German development policy: poverty reduction; promoting gender equality; participatory development and good governance; environmental and resource protection; crisis prevention; combating drug abuse; rural development; and protecting tropical forests. Accordingly, the role of good governance plays a major role in the design of advisory services to counter corruption and rent-seeking activities.
GIZ takes the approach to view water delivery and system maintenance as a service provision, rather than a purely technical task. By doing so, GIZ uses “principal-agent-theory” to develop mechanisms such as water users’ associations (WUA) to solve potential problems in large irrigation schemes where information is unevenly distributed. The aim of this approach is to promote participation of famers, increase accountability, decrease information asymmetries and promote water efficiency and economic development in rural areas.
Good practice example from Jordan
Despite an up-scaling of irrigation systems in the Jordan Valley from surface to drip irrigation, the performance of the irrigation schemes remained below expectations. The “lessons learned” by GIZ included taking an institutional approach of implementing a transfer of irrigation management services from the Jordan Valley Authority (JVA) to the farmers themselves as water users. One of the goals behind the establishment of 22 water user associations (WUAs) in Jordan was to improve trust amongst farmers in the Jordan Valley in order to avoid potential “moral hazard” and “hold-up” scenarios.
After the initial phase of confidence building (2001-2003), the first WUA was established in 2003 (in total 22, as per April 2010). From 2006-2009, the task of water provision was transferred from the JVA to WUAs. The WUAs now cover almost 80% of the irrigated area in the Jordan Valley.
The results of WUAs in the Jordan Valley show:
- a more efficient and decentralised irrigation water distribution,
- a more stabilised network water pressure and water structure,
- a decreased percentage in penalties related to illegal water use and maintenance cases,
- an increased trust and cooperation between JVA and farmers, and
- the transfer of water distribution tasks from JVA to 11 WUAs
- ↑ 1.0 1.1 1.2 Huppert, Walter and Wolff, Birgitta (2002): “Principal-Agent” Problems in Irrigation –inviting rent-seeking and corruption. In: Journal of Applied Irrigation Science, Vol. 37, No. 2/2002, p. 179-198.
- ↑ 2.0 2.1 Bundesministerium für Wirtschaftliche Zusammenarbeit und Entwicklung (BMZ): “For Positive Results – the Cross-Cutting Topics”. In: BMZ website 2012. http://www.bmz.de/en/what_we_do/principles/rules/crosscuttingissues/index.html [2012-07-07].
- ↑ Organisation for Economic Cooperation and Development (OECD): “Glossary of Statistical Terms: Rent-Seeking”. In: OECD Website 17 March 2002. http://stats.oecd.org/glossary/detail.asp?ID=3297[2012-07-07].
- ↑ Huppert, Walter and Urban, Klaus (2002): Irrigation Management in the Jordan Valley – The neglected issue of “Principal-Agent” problems. In: Journal of Applied Irrigation Science, Vol. 37, No. 2/2002, p. 199-218.
- ↑ 5.0 5.1 5.2 Gesellschaft für Technische Zusammenarbeit (GTZ) (2010): Topic Sheet: German-Jordanian Programme – Management of Water Resources: Water Users’ Associations. Eschborn: GTZ. fckLRhttp://star-www.giz.de/dokumente/bib-2010/gtz2010-3095en-water-user-associations-wua.pdffckLR[2013-02-18]
German-Jordanian Management of Water Resources Programme: http://www.giz.de/themen/en/18151.htm [2013-02-18].
GIZ (2008): Management of water resources - a German-Jordanian Technical Cooperation Programme. http://www.giz.de/Themen/de/dokumente/gtz2010-en-water-resources-jordan.pdf
GIZ, Goethe Institut e.V. (2006): Cultural Aspects of Corruption. Reports from Regional Round tables in Asia.
Huppert, Walter and Urban, Klaus (2002): Irrigation Management in the Jordan Valley – The neglected issue of “Principal-Agent” problems. In: Journal of Applied Irrigation Science, Vol. 37, No. 2/2002, p. 199-218.
Huppert, Walter (2003): „Principal-Agent“ Problems in Water Management. Inviting rentseeking and corruption.