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In the context of increasing competition for water, knowledge of the marginal productivity of water is crucial in determining its optimal allocation between users. Using primary, plot level panel data, this paper estimates the marginal productivity of water from supple- mentary irrigation in lowland rice systems in Cambodia, taking into account farmer and plot heterogeneity as well as self-selection of sup- plementary irrigation. Our estimates indicate a range of elasticity for rice output with respect to water inputs between 0.057 and 0.069 for wet season production, and an estimate of 0.125 in the dry season, sub- stantially lower than previous estimates based on either aggregate or trial data. We discuss the policy implications of these results, in par- ticular with respect to the utility of demand management policies and the challenges they pose to the decentralization of water management to Water Users Groups that are meant to be financially independent.


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