Determining the Economic Value of Groundwater: A Case Study of City of Ravar (Kerman Province)

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Abstract

Due to contiguous city of Ravar with Lut and Dasht-e Kavir desert, and weather conditions, water is one of the rarest agricultural inputs in this city. Pistachio allocates 90% of garden and 73% of agricultural lands of the city and it is the most important agricultural product in this region. A major source of agricultural water supply in this area is groundwater. Low price of water on one side and increased pistachio prices in recent year on the other side increased the profitability of taking the advantage of excessive groundwater use. Therefore, in this paper the economic value of groundwater has been studied during the period of 2007-2008. For this, the method of marginal productivity value of inputs is used. This method requires estimation of production function. Therefore, proper function for pistachio was estimated and then economic value of water were determined utilizing the marginal productivity value. The results show that the economic value of per cubic meter of underground water in the Ravar city in average is 19,870 Rials. In consideration of 49% share of water in pistachio production and the lack of water in the city, the present prices should gradually approach to its real value for promoting and incouraging farmers to optimize water use.
JEL Classification: Q25, D45, D29

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