ARTICLE | Journal of Development Economics | Vol.161, 2023

Abstract

Irrigation provides insurance against aggregate weather shocks, which can interact with other institutions functioning in village communities. I study this relationship in a model of joint co-operation over irrigation and risk sharing under limited commitment. The model dynamics show that if access to irrigation can be regulated by villagers, the two institutions reinforce each other. However, non-excludable irrigation crowds out risk sharing (as is the case with government-managed irrigation). I estimate the framework on data from three villages in India and use it to quantify the relationship between informal insurance and irrigation, and the welfare impact of irrigation public policy.