Asymmetric Information on the Provision of Irrigation through a Public Infrastructure: The Case of the Peninsula of Santa Elena, Ecuador

Abstract

This paper analyzes the problem of irrigation provision through a public infrastructure in an environment of Asymmetric Information (AI) in a dry area of Ecuador. Due to mismanagement of information and bad definition of goals by the government, a massive interest in acquiring communal lands started in the Peninsula of Santa Elena (PSE) after the government announced the construction plan of a large public irrigation system. During this process, information asymmetries regarding the potential of the irrigation system always prevailed in favor of land buyers. After eight years of functioning of the irrigation system, less than 20 percent of its capacity is in use. This leads to a situation in which the operation and maintenance of the canals is not appropriate, thus endangering sustainability of agriculture itself. This paper starts from the hypothesis that AI has an important impact over the observed pattern of land use and therefore irrigation in the PSE. Under the condition of AI for public goods with costly access, a test was conducted to determine which of the characteristics for an optimal allocation fits in the case of the PSE. Farmer's marginal cost of access to irrigation in connection with the concentration of the property of land by new landholders is considered the relevant informational variable. The most important result of this paper is that the presence of AI induces a scenario in which new landholders demand a smaller quantity of irrigation because of the high marginal costs of farming on big farm plots. A second important result suggests that subsidies to new landowners through the provision of irrigation appear to increase inequality with respect to peasant-commoners.