The more sustainable use of scarce water resources is a policy goal in several countries. In this regard, current discussions on potential policy reforms in Switzerland revolve around the subsidization of water-saving irrigation technologies. Today, the share of drip irrigation systems is low, at 3%. In Switzerland, environmental laws specify levels of water flow that must not be undercut. Variable pricing of water, however, has not yet been used. This paper analyzes whether subsidies on water-saving irrigation techniques would be beneficial in this legislative setting, and shows that such subsidies may have crowding out effects because they could provide incentives to switch from non-irrigated crops (e.g. wheat) to the production of crops (e.g. potatoes) that require irrigation. This may result in even higher water withdrawal rates. Such an increased competition for water resources may also result in adverse conditions for farmers. By contrast, our analysis shows the implementation of water prices could lead to a sustainable increase in the share of water-saving technologies, to a shift from irrigated to non-irrigated crops, and therefore to a reduction of overall water use in agriculture. Thus, the introduction of water prices should have absolute priority if agricultural water policies are reformed in Switzerland.

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