Decentralization and Spatial (Mis-)Allocation of Irrigation Water

This paper examines the consequence of decentralization in the management of canal irrigation for spatial allocation of water and agricultural performance. Under centralized management, farmers closer to the canal tend to over-extract water, resulting in spatial mis-allocation. We test whether decentralization can improve spatial allocation of water by exploiting the staggered constitution of locally elected canal management bodies (“Pani Panchayats”) in the state of Orissa, India, that decentralized its canal management. Using survey data and a heterogeneous treatment effect estimation strategy using farmer level fixed effects, we show that farming plots farther away from the canal received less water under centralized system, but longer exposure to decentralization significantly reduces spatial mis-allocation. Consequently, agricultural revenue and wealth (landholding) improve more for those farmers. We find suggestive evidence that distant farmers’ ability to complain to local representatives is an important mechanism explaining our results