The paper’s main objective is to develop a farm-level water programming model that realistically models extensive margin and intensive margin responses resulting from deficit irrigation to the implementation of volumetric water charges. The results showed that when area-based charging applies, and irrigation application efficiency is low, more water per hectare is applied to sustain high crop yields without being held accountable for exceeding their water quota. On the other hand, irrigators with relatively higher application efficiencies could use less water than the area-based estimated water use. The results also showed that changing to volumetric water charges causes both intensive margin and extensive margin responses. Irrigators would adopt deficit irrigation and use the saved water to profitably irrigate larger areas without exceeding their water quota. Implementing volumetric charging will create an economic incentive for irrigators with low efficiencies to adopt more efficient technology which might cause rebound effects. The conclusion of whether a volumetric-based water charging system will be better than area-based water charges is not straightforward because of differentiated impacts on profitability and hydrology. While irrigators will use irrigation water relatively more efficiently and adopt more efficient irrigation technologies, their changed behaviour could impact the hydrology of the water system through reduced return flows.
