Economic incentives are used in many situations to motivate improvements in the use of scarce resources. In some areas, implementing appropriate incentives is made challenging by the nature of existing institutions or the inability to assign property rights and measure individual use of key resources. Higher prices for irrigation water can motivate wiser use of water in regions where the opportunity cost of water is rising, due to increasing municipal, industrial and environmental demands. This paper describes how an increasing block-rate pricing structure was designed and implemented in an irrigation district in central California. The goals of the program were to improve water management practices and reduce the volume of subsurface drain water discharged into the San Joaquin River. Results describing reductions in average irrigation depths and drain water volumes, collected throughout the 1990s, demonstrate the potential for achieving resource management goals with economic incentives that motivate changes in farm-level management practices. Complementary incentive programs and issues regarding program implementation and the sustainability of drain water reduction efforts in an arid region also are discussed.

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