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China's fast growing economy has brought some environmental problems, especially in water administration. Inefficiencies in irrigation activities have created severe negative effects to the environment of rural communities, and the more serious water shortages hamper food production, too. Major questions at hand are, how to improve water use efficiency, to reduce negative external effects, to optimize water allocation in agriculture, to invest in water saving technologies, and to assure more water for high value added agriculture. This paper investigates the impacts of irrigation technologies and investments in water saving on the rural economy and the environment. By taking into account individual farmers' inclination to adopt modern water-saving technologies and governments' willingness to improve public water transit systems, we optimize water use in a Chinese watershed. The main contribution is a model that shows how to optimize spatial allocation and adoption of irrigation technology given farm and investment costs. The paper employs a mathematical, spatial programming model using GAMS for optimization. It shows the importance of water pricing and discusses various policy measures such as pricing and public conveyance. The model results are of value for policy makers and project managers to allocate water more efficiently, to optimize irrigation projects, and to provide references for farmers in applying water conservation technologies.


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