Water applications and Pigouvian taxes to control irrigation-induced soil degradation

Salt and water transport external costs of irrigation are borne disproportionately by lower elevation farmers. The relationship between fields for an optimal Pigouvian tax plan varies considerably as the amount of available water changes, demonstrating that a simple rule cannot be relied upon. A numerical example demonstrates the optimal application pattern and Pigouvian tax plan in contrast to the sequential Nash equilibrium. Shadow values for water are used to argue that between distributaries, the second best optimum is unlikely to be equal allocation. Physical measures of soil state are also shown to be worse under the optimal plan, throwing doubt on their usefulness.