Publication Date: June 2020
Common resources may be managed with ineﬀicient policies for the sake of equity. We study how rationing the commons shapes the eﬀiciency and equity of resource use, in the context of agricultural groundwater use in Rajasthan, India. We ﬁnd that rationing binds on input use, such that farmers, despite trivial prices for water extraction, use roughly the socially optimal amount of water on average. The rationing regime is still grossly ineﬀicient, because it misallocates water across farmers, lowering productivity. Pigouvian reform would increase agricultural surplus by 12% of household income, yet fall well short of a Pareto improvement over rationing.
Keywords: Common resources, Agricultural productivity, Misallocation, Sustainable development
JEL Classification Codes: D24, Q15, Q56, O13