Short run marginal returns from irrigation water

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Abstract
The value of water is often an enigma, that is, it can be relatively high or very low depending on supply and demand. In this article the relative value of water is shown by employing the principle of diminishing returns as it relates to a low‐valued crop (alfalfa). When water is abundant and is a free good, irrigators may rationally apply water to the point where its marginal product is zero. When water is scarce and has a price, however, the situation is quite different. Rational irrigators should then apply water in the short run to the point where price equals marginal value product. Even for a relatively low‐valued crop such as alfalfa, application rates could range from zero to five acre‐feet per acre when water prices vary from zero to $240 per acre‐foot.

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