The Use and Usefulness of Irrigation Property Reform for Sustainable Agriculture

Yi Cui, Jing You, Jiujie Ma, Renmin University of , [email protected]

Selected Poster prepared for presentation at the 2019 Agricultural & Applied Economics Association Annual Meeting, Atlanta, GA, July 21-23

Copyright 2019 by [Yi Cui, Jing You, Jiujie Ma]. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. The Use and Usefulness of Irrigation Property Reform for

Sustainable Agriculture

The curfew tolls the knell of parting day,

The lowing herd wind slowly o’er the lea

The ploughman homeward plods his weary way,

And leaves the world to darkness and to me.

-- by Thomas Gray

Abstract: By utilising a recent reform on irrigation property rights in rural China and a unique plot-crop-level panel dataset with 1,106 plots out of 413 households over the period 2013-2017, we assess the causal impact of irrigation property reform on rural households’ adoption of different irrigation technologies and investigate the underlying mechanisms. The Chinese government piloted a reform of water rights in 2014. Prior to it, irrigation water used for agricultural production was free. After clearly defining and allocating the water rights for each well (either dug, driven or drilled ones) in the village, rural households began to pay water fees in agricultural production in 2015. To address heterogeneous treatment effects conditional on the initial structures of the irrigation property (including the privately-owned, jointly owned between the farmer(s) and the village committee, or collectively owned by the village committee), we apply a difference-in- difference-in-difference (DDD) strategy to the plot panel data, where we compare the evolution of outcomes in villages that have had the reform in villages that have not yet implemented the reform. We also did tests of sources of variations, placebo regressions and robustness checks to make the results of the analysis seem robust.

We further explore transmission channels from the “demand” side (i.e., households’ perspectives). We found that households’ satisfaction and cooperative incentives play a role – those having higher satisfaction with the existing irrigation systems or stronger cooperative incentives in solving difficulties are less likely to adopt water-saving irrigation (WSI) techniques after the reform. This indicates that while the irrigation-property rights reform encourages WSI adoption, households only consider WSI techniques as substitutes of other existing water use conditions. By doing mechanism tests we find that the effect of reform policy on farmers’ behaviour was altered by cultural norms and social concepts/actions of the treated groups. We then summarise policy implications to a series of property reforms in the Chinese agricultural sector.

Key words: Water, Irrigation, Property right, Technology adoption, Sustainable agriculture

JEL classifications: Q15, R23, Q12

1. Introduction

Irrigation and water-saving technologies are crucial to farmers’ adaptions to climate change and sustainable agriculture. However, experience of irrigation has shown that technology alone is not sufficient to ensure productivity gains (Dick, 2014). Appropriate policies and reforms, such as creating water right institution and carrying out a rational water price mechanism are needed to accompany water-saving irrigation (WSI) for sustainable agriculture. Among these key factors, property rights play a particularly important role. Element theory of property rights shows that as resource becomes scarce, users of the resource compete with each other and even come into conflict, making it essential to define clear property rights, or at least the security of water using right. Water right is the specific application of property rights theory in the field of water resources management. The construction of water rights system is considered to be an effective means to improve the efficiency of water resources allocation and utilization.

While the role of irrigation property reform contributing to sustainable natural resource management is increasingly recognized, translating that into practice is more challenging (Deininger,2003), especially in developing countries. Customary water rights are likely to be particularly strong in these countries, often varying from one context to another, and differing from local policies (von Benda-Beckmann et al., 1998). Besides, as North (1990) notes, institutional change is path dependent: it is inherently shaped by the history of a particular place. Thus, the evaluation of the causal effects of property rights is a difficult task as their allocation is typically endogenous (Galiani and Schargrodsky, 2010). Moreover, there also exist debates claiming that privatization of property rights has not eased the “tragedy of the commons”, but has led to more serious resource depletion due to rational growth and “technical externalities” (C.W.Clark, 1980). Therefore, some scholars still doubt the operability and necessity of establishing individual property rights in field of natural resources.

In China, the irrigation property reform was initiated in 2014. Since then, government also began to impose irrigation fees in agriculture production on farmers, especially when the irrigation well is not owned by that household. If households only have partial ownership rights of the irrigation well, they pay water-use fees for the remaining property rights beyond their ownership. With private ownership of irrigation wells, however, farmers could not only use water with the lowest water cost (only includes electricity costs of irrigation well in most circumstances), but also sell water to others who don’t own a well. At first glance, this division of property rights appears rather weird, for the right to sell water is hold as the joint property of the members of the organization while the right to use water is held as an individual property right. The explanation of this issue may lie in the fact that joint ownership of the right to sell water to outsiders may be one method of promoting jointly optimal water use given the presence of spill-over effects between the members of the organization. Traditional property rights theory predicts that such a reform defining costs based on the structure of property rights would encourage water-saving technologies for those do not hold irrigation property rights. But, considering the conflicts between theories and reality, could these contractual arrangements in irrigation property, in fact, promote the efficient use of the water rights controlled by the organization? The impact of irrigation property reform on farmers’ behavioral responses of adopting WSI still remains to be tested.

The present study proceeds as below. The next section reviews the background of the water use policy and property reform in rural China and previous findings. Section 3 spells out identification strategy and the empirical methodology. Section 4 describes data and uses it to testify assumptions underlying causal identification. Section 5 discusses estimation results. Section 6 concludes with policy implications.

2. Literature review

There have been a number of studies investigating the determinants of farmers’ adoption of WSI, such as water availability and climatic conditions (Olen et al., 2016), perceptions on challenges of adoption (Gebremeskel et al., 2018), awareness of water scarcity (Tang et al., 2016) and potential benefits from adoption (Chang et al., 2016; Lichtenberg et al., 2015), perceptions on risks and challenges of WSI (Dai et al., 2017; Gebremeskel et al., 2017), farmers’ characteristics such as education, gender, economic incentives shaped by water pricing (Cooper and Keim, 1996; Cremades et al., 2015) and (increasing) prices of outputs (Taylor and Zilberman, 2016), cooperative incentives (Mattoussi et al., 2014), land ownership (Burnham et al., 2015), the irrigation conditions (Yamagachi et al., 2019), and governance (Blanke et al., 2007; Malik et al., 2018).

To ensure sustainability, water needs to be used efficiently. New institutional economics have evaluated the relative efficiency of private property (Ostrom, 1990). Therefore, the ability to solve the problems of collective action and property rights is essential for water (M. Hanemann, 2014). A necessary condition for the efficient use of water is the existence of a well- functioning system of property rights. Many government officials and irrigation programs have called for farmers to develop a “sense of ownership” over the irrigation systems so that they will avoid excessive water use (Vermillion, 1987). Thus it’s important to formulate a policy about how to hand over the responsibilities to the water users (N.Sengupta, 1987). This paper links this strand of literature to the irrigation property rights. Studies of farmer-managed irrigation systems showed that in many cases these performed better than village-managed systems (Lam, 1998; Ostrom, 1992; Tang, 1992; Uphoff, 1986). As Dick (2014) noted, property rights to water can give users some assurance that their investments in irrigation will be sustainable. Well-defined and secure property rights are institutional foundations in designing water pricing and allocation mechanisms (Ostrom, 1992), in order to promote investment and production (Coase, 1991). Coward (1986) explicitly recognized the link between property rights and infrastructure management, but focused on the effect of creating and maintaining property together as creating the “social glue” that would strengthen irrigator groups to maintain their irrigation.

In contrast to Meinzen-Dick’s account of developing countries, however, researchers who study the local provision of irrigation water in the US claim that “the arrangements that emerged for agricultural water supply and use served both economic and political purposes” (M. Hanemann, 2014). They oppose the practice of private ownership of irrigation property, believing that irrigation institutions such as joint-stock companies and organs of local governments seem likely to afford an adequate basis for the future sustainability of irrigation. Also, the complex and fragmented system of property rights that resulted impairs the efficiency and sustainability of water by impeding long-run water transfers (M. Hanemann, 2014). Therefore, its’ necessary to untangle and simplify some of the water rights involved, and it would require political will.

Regarding the situation in practice, developing countries often experience weak property rights that might deter investment. Property right issues to water are often overlooked or not taken seriously, partly because of the complexity of water rights (Dick, 2014). Efforts to improve irrigation through changes in property rights systems often fail because they do not recognize the difficulty of clear property rights systems that move from one place to another (Bauer, 2004). On the other hand, rapid reforms may also be counterproductive. They are unlikely to be fully implemented as planned, and create uncertainty and resentment in the process (David Guillet, 1996).

In this paper we assess the causal impact of China’s irrigation property reform on rural households’ adoption of different irrigation technologies and investigate the underlying mechanisms. For a long time in history, Chinese farmers did not need to pay for agricultural irrigation. Started from 2014, policy of water price as well as irrigation property reform was implemented in different provinces. Moreover, two quite different forms of property rights in groundwater and water lifting devices emerged in recent years. Before irrigation property reform, most irrigation wells are constructed by village collective. They were considered as public goods and shared by the villagers. Later with the reform of irrigation property and water price, some farmers accepted the government subsidies and invested in wells as well as water-saving irrigation equipment, while others still held water lifting devices as common property and just to pay for the water. These different decisions by the farmers generated an allocation of property rights across villages.

3. Institutional background Water rights reform of China began in 2014, of which irrigation property reform is an important part. Other projects include water rights trading, water price reform as well as developing water rights system. In the government’s selection of pilot areas of irrigation property reform, priority was given to “groundwater over-exploited areas”1. That means pilot of irrigation property reform was firstly implemented in water-scarce regions. In the second half of 2014, 7 provinces were firstly selected as pilot areas, based on…selection quiteria. The pilot areas has been gradually growing. By the end of 2014, 49 counties (cities and districts) in the pilot area of comprehensive control of groundwater overexploitation will start water rights reform.

Inner Mongolia was one of the earliest seven pilot regions2 of water right reform, while the pilot project in mainly focused on water rights trading instead of irrigation property reform. So far, most areas in Inner Mongolia have not carried out irrigation property reform. At the county level, we couldn’t find the throughout pilot of irrigation property reform, but still there are some villages within the scope of the pilot. Some communities will have less well-developed private ownership systems and more highly developed collective ownership systems. But, given a community’s tastes in this regard, the emergence of new private or collective owned property rights will be in response to changes in technology and relative water prices. The adjustments of irrigation property have arisen in northern China largely as a result of gradual changes in social mores and in reform policy precedents. At each step of this adjustment process, it is unlikely that externalities per se were consciously related to the issue being resolved.

Reform pilot project in Province also started in 2014. Irrigation property reform was initially carried out in 8 water-short counties of Hebei Province, and it developed rapidly in the following years. The government issued a property certificate for each legal private irrigation wells. In 2017, after three years’ exploration, more than 14 million rural households in Hebei Province obtained water rights certificates. All sample counties collect agricultural irrigation water fees. Hebei Province began to collect irrigation water fee in 2016. Pilot program is to charge water fee according to electricity consumption during irrigation, that is, to add a bit more money to every unit of the original electricity bill. The coefficients between water and electricity were calculated by local government, and they vary slightly in different regions. Usually it is not more than 0.2 yuan per cubic meter of water. Furthermore, government carried out a water quota policy of irrigation by the end of 2017. It aimed to allocate water that is continuously used to the units and individuals. The specific amount of water quota depends on estimation of total amount of irrigation water that farmers would use and the area of cultivated land. 53 counties (cities, districts) in Hebei Province pilot areas for comprehensive management of over-exploitation of groundwater have started the preparation of the distribution plan for the right to use water

1 In 2017, to compensate the overdraft of groundwater, Hebei Province announced the scope of groundwater over- exploitation, forbidden and restricted mining areas, involving 11 districts and cities in the province and , and Xiong'an new districts. Groundwater Overdraft Comprehensive Treatment Pilot Areas ？ 2 In 2014, the Ministry of Water Resources of China launched water rights trials in the following provinces and regions: Ningxia, Jiangxi, Hubei, Inner Mongolia, Henan, Gansu and Guangdong. resources. After confirming users’ right to water, government would register and issue valid water rights certificates to them. At the beginning of 2015, Hebei Province has completed the project of issuing certification of the right to use water resources.

Besides, other project of water rights and water quota carried out smoothly because of the introduction of water right registration in Hebei Province. From 2013, the right to construct new irrigation wells by private persons and enterprises has been limited by Hebei provincial government. Anyone who tends to drill a new well should apply for a well-drilling permit. From provincial to county level, the number of private wells was strictly regulated. Interestingly, if digging a well requires the government’s approval, even though households own the full property rights of the well, they are less likely to use water-saving technologies. The government’s approval might make households perceive the “privately owned irrigation equipment” as a public good and thereby does not respond to the incentives conforming to the reform. Thus, the concurrent acquisition of water resources also changes the institutional arrangement for water management in the investment areas.

Standards of water fee charges in Inner Mongolia and Hebei are quite similar. The charge depends on property of the irrigation wells. Farmers with their own irrigation wells do not have to pay for irrigation water, while those who use others’ wells have to pay for both electricity and irrigation water bills. Also, water fees vary with different types of ownership of irrigation wells. There are four main kinds of property ownership of irrigation wells in practice, namely, farmer’s personal ownership, shared rights, collective ownership and ownership of other farmers. Generally in the first two cases, farmers have rights to the irrigation wells, thus, they don’t have to pay for water anymore. Once they use wells of others or collective, they are asked to pay for water fee, and the former is usually more expensive than the latter. The changing process of water rights reform of these two provinces is showed in Table 1.

Table 1. Policy Change Process in Two Provinces

Year Hebei Province Inner Mongolia

Water rights trading pilot started. Inner 8 counties were firstly identified as the pilot areas of 2014 Mongolia began to explore various forms of water rights reform. water rights trading circulation mode.

The pilot areas expanded to 49 counties. Legal private irrigation wells were awarded a title certificate, while illegal ones were shut down. 2015 Water price reform was introduced. Irrigation property reform was accompanied by water price reform.

2016 The pilot areas expanded to 115 counties. Inner Mongolia established water rights trading "Agreement on Agricultural Water Transaction" was platform. introduced.

47 new counties were added in pilot regions. Irrigation property reform was completed in 161 counties (cities, districts). 2017 The reform of water rights system was further strengthened.

Notes: Water rights reform of China is a quite complicated one and contains a lot of measures or contents. Except for water price reform and irrigation property reform, there are also policies as water allocated quotas, water rights trading pilot and a license limitation program in construction of irrigation wells.

Since the successful case of limitation of constructing new irrigation wells is relatively rare in current China; meanwhile, water rights trading pilot is mostly introduced in urban area, we choose irrigation property reform as a measurement to water rights reform. Table 2 reports the policy changing profess of the five sample counties we investigated. The irrigation property reform and its associated policy of charging rural households water-use fees in agricultural production were initiated in 2014. Our project investigated the variation in property rights during the period of groundwater irrigation of the past decade.

Table 2. Policy Change Process of the Five Sample Counties

Province County 2015 2016

Irrigation property reform are Water price reform carried out in most villages Hebei Province Water price reform and irrigation property reform are carried out in most villages

Irrigation property reform are Wuchuan County Water price reform carried out in some villages. Inner Chahar Youyizhongqi Water price reform Mongolia Irrigation property reform are Siziwangqi carried out in some villages

3. Methodology and model

3.1. Theoretical framework Recognizing the need for property rights to achieve sustainable and effective irrigation management is an important step. We summarize three impact mechanisms of irrigation property reform on farmers’ adoption of WSI.

Firstly, irrigation property clarifies the contents of water right. There are numerous definitions of water rights: Schlager and Ostrom (1992) defined water right as bundles of rights, in terms of use rights of access and withdrawal, and decision-making (or control) rights of management, exclusion, and alienation. In 2003, Ribot and Peluso distinguished between access to resources (e.g. being physically able to get water) and rights (entitlements). Here, infrastructure, such as irrigation well can increase water tenure security by providing storage (groundwater) to buffer against short-term fluctuations. In this way, irrigation property could be regarded as a right which can make to improving access to water. Specifically, by confirming their ownership of the irrigation wells, farmers’ bundles of water right are protected by irrigation property reform. Those rights include: the security of investment in improving the resource; assignment of water right; right to use over a period of time; right to purchase or sell water; and inheritance. Theoretically, the contents of water right contribute to sustainable natural resource management and irrigation efficiency (P.B.Anand, 2007). Coase (1991) has proposed the importance of property rights system on protection of water resources. Later, Dick (2014) explores that some form of property rights to water can help prevent conflicts and give users some assurance that their investments in irrigation will be sustainable.

Secondly, security of the right to use water encourages farmers’ behavior of WSI. Dick(2014) noted that it is not only the content of the rights that matter, but also the security with which they are held. Although security of tenure is often thought of in terms of rights to the land, people may not be willing to invest in WSI if they do not also have secure rights to the water that will give them the returns. Private investment in irrigation infrastructure is problematic given that groundwater distribution involves large joint and fixed costs. There is a fundamental tradeoff between a need for flexibility and a need for security (M. Hanemann, 2014). This has been the problem with many irrigation management transfer systems, where farmers were expected to bear the costs of drilling wells, without secure rights to the water from the systems. Property rights are important in this regard because they clarify who can use and manage the land, water, or infrastructure, and what responsibilities they have toward the resource and toward others.

The strength of incentives to WSI depends on how confident rightholders can be that they will hold water right in the future. Key aspects of tenure security include the expected duration of the right and its robustness, which refers to the ability of property right to withstand challenges. Some of these challenges come from the physical environment (e.g. weather fluctuations or landslides that destroy infrastructure). Other challenges, come from the institutional environment, such as immigrant communities may begin using water from the same source as other right-holders, or extension of an irrigation system may create new claimants. Farmers may not have the incentive to make long-term WSI investments unless they have secure tenure, to know that there benefit would compensate for cost of the investment in the long run. Irrigation property reform convinces users of their WSI investment would be sustainable.

Thirdly, farmers’ “sense of ownership” over the irrigation systems might urge them to take care of wells and carry out sustainable irrigation methods (Vermillion, 1987). Unless farmers are recognized as having management rights over the infrastructure and water, they do not have the authority to make any changes in the irrigation systems, including adopting WSI. Thus, public wells are more likely to be abused compared with private wells. Also, secure property rights are institutional foundations in designing water pricing and allocation mechanisms (Ostrom, 1992). Individual users who own wells also own the right to transfer the water that they use (see, Bretsen and Hill, 2006). The water use and usufructus (income) rights can provide incentives to maintain irrigation systems and save water because the holder of the rights will reap the future benefits of investment and careful maintenance, and bear the losses incurred by misuse of the resources.

Except for individual-operated wells, a group of smallholder farmers may get together to make the investment in drilling the well, installing a pump, and operating it (collective action coordination), and sell water to neighbors. Meinzen-Dick (1996) compared the performance of shared wells and groundwater markets in Pakistan, finding that when the water became very scarce, the well owners would deny water to water purchasers. This has important implications for the sustainability of irrigation systems. For any type of property rights to provide security and incentives for careful management of the water or infrastructure, the rules need to be clearly understood as well as enforced. Arrangements that assign different bundles of rights to use, control, and derive income from the resources are likely to lead to more effective co- management arrangements.

Access to water

Clarify contents of water right Improve land value

Inheritance

Irrigation Improve security of tenure Reduce water cost Adoption Property in the long run Of Reform WSI Different water price

Avoid over-exploitation

Maintain wells and Water allocation keep sustainable

Sell extra water to others

Figure 1. Theoretical framework

On the other hand, however, the control over water, land and infrastructure, including usufructus rights to earn income from them, might also cause water overuse for farmers’ motivation of income earning. In practice this is the reason why sometimes government is reluctant to transfer water allocation right to individuals. Thus we also need to test whether owing irrigation property eventually lead to excessive water use.

3.2. Model

The identification strategy assumes that the introduction of irrigation property-rights reform was quasi-random once village-specific time trends and village and year fixed effects are included. Usually the difference-in-difference (DID) model is a common method for policy effect evaluation. In this way, we examine the impact of policy implementation on the “treated group” by finding appropriate “controlled group”. Since the implementation of irrigation property reform is aimed at some specific water-deficient areas, we may choose pilot villages in pilot provinces (counties) as the “treated group” while other villages from pilot areas as well as villages from non-pilot counties as the “controlled group” for the application of DID estimation. However, this approach may not satisfy the parallel trends assumption. If we choose the non- pilot villages of pilot provinces (counties) as the “control group”, for instance, it is still possible that differences between pilot villages and non-pilot villages may change over time (even if the irrigation property reform was not introduced). And if the villages in non-pilot counties are chosen as the “control group”, there may also exist great differences in actual conditions between the two types of regions, i.e., pilot areas are not randomly selected. Therefore, no matter which group of companies is selected as the “controlled group”, it may not be possible to obtain a consistent estimate when estimating the DID model. Specifically, to address heterogeneous treatment effects conditional on initial property structure, we use a difference-in-difference-in- difference (DDD) strategy, where we compare the evolution of household outcomes in villages that have had the reform in villages that have not yet implemented the reform. The baseline equation characterising the effect of reform is as follows:

= + + + + + + + + + (1) 𝑦𝑦𝑖𝑖𝑖𝑖𝑖𝑖 𝛼𝛼 𝜃𝜃1𝑃𝑃𝑖𝑖𝑖𝑖+ 𝜃𝜃2𝐷𝐷𝑡𝑡+ 𝜃𝜃3+𝑇𝑇𝑣𝑣 +𝛿𝛿1𝑃𝑃𝑖𝑖𝑖𝑖𝐷𝐷 𝑡𝑡 𝛿𝛿2𝑃𝑃𝑖𝑖𝑖𝑖𝑇𝑇𝑣𝑣 𝜆𝜆𝜆𝜆𝑖𝑖𝑖𝑖𝐷𝐷𝑡𝑡𝑇𝑇𝑣𝑣 𝛽𝛽1𝑋𝑋𝑖𝑖𝑖𝑖𝑖𝑖 𝛽𝛽2𝑋𝑋ℎ𝑣𝑣𝑣𝑣 𝛽𝛽3𝑋𝑋𝑣𝑣𝑣𝑣 𝛽𝛽4𝑍𝑍𝑣𝑣 𝛾𝛾𝑣𝑣𝑡𝑡 𝑣𝑣𝑖𝑖 𝜀𝜀𝑖𝑖𝑖𝑖𝑖𝑖 where the reform outcomes of plot in village during the calendar year , yivt , such as which irrigation technology and the type of agricultural production the household used in this plot. 𝑖𝑖 𝑣𝑣 𝑡𝑡 These outcomes are a function of: the original well property denotes the property of wells used by that households to irrigate plot in village . in the year 2013; denotes whether the 𝑃𝑃𝑖𝑖𝑖𝑖 time of data collection is before or after irrigation property reform, thus it takes the value of zero 𝑖𝑖 𝑣𝑣 𝐷𝐷𝑡𝑡 in the year 2013 and one in 2017; the irrigation property reform Tivt taking the value of one if the reform takes place in plot of village during the year . The average treatment effect, , is the multiplication of , and . 𝑖𝑖 𝑣𝑣 𝑡𝑡 𝑃𝑃𝑖𝑖𝑖𝑖𝐷𝐷𝑡𝑡𝑇𝑇𝑣𝑣 Other control variables𝑃𝑃𝑖𝑖𝑖𝑖 𝐷𝐷𝑡𝑡 are:𝑇𝑇 𝑣𝑣 plot characteristics X such as land topography, soil 3 precipitation and quality of plot , the characteristics of the 𝑖𝑖𝑖𝑖𝑖𝑖crop grown in this plot , whether the plot is the largest cultivated farmland for the household, average cost of per metre in well construction, water price per hour𝑖𝑖 for this plot (B Olen et al., 2016), and average costs of growing certain crops that the household has grown in plot i excluding expenditures on water; the household characteristics X such as household demographics and wealth; the village X characteristics such as theℎ 𝑣𝑣𝑣𝑣village infrastructure, access to irrigation water in terms of village-owned wells𝑣𝑣𝑣𝑣 (which are free for households to use); the village-year trends ; the plot fixed effects and the year fixed effects . γ𝑣𝑣𝑣𝑣 Motivated𝑣𝑣𝑡𝑡 by theoretical models of technology𝑑𝑑𝑡𝑡 adoption (Foster and Rosenzweig, 2010), we particularly investigate four channels that might underlie the impact of irrigation property reform. We include directly those factors in – the contracting institution, farmers’ perceptions, incentives for water management (Mattoussi𝑖𝑖𝑖𝑖𝑖𝑖 and Seabright, 2014), and social learning. Based on the existing empirical literature,𝐁𝐁 we use the following pre-reform information (in 2007) to indicate exogenously those mechanisms. Specifically, contracting institution is measured by the security of the land property right of plot i and the initial endowments of water resource (Sekhri, 2014) in terms of the share of property rights owned by the household for the irrigation equipment used in plot i . Perceptions include farmers’ risk preference (Liu, 2013),

3 Respondents of the research are potato growers, thus our input and output data in each plot are all related to potatoes. trust in institutions, and satisfaction about village irrigation systems. Individual incentives to water management are regulated by cooperative management institutions such as punishment levels and cooperation/collective action within the village (Mattoussi and Seabright, 2014). Social learning is presumably carried by peer effects in update of water-saving technologies within the village (Adrianzén, 2014) and knowledge transmission via social networks (Maertens and Barrett, 2012) and extension services such as professional organisations/cooperatives and training sessions (Genius et al., 2014).

In regressions, the four kinds of mechanisms will be examined separately given our sample size. picks up the average treatment effect of the policy reform and is expected to be positive. The interaction terms between and and thereby capture the mechanisms underlying 𝜃𝜃1 policy effects, while remains largely inconclusive in the existing literature. 𝑇𝑇𝑖𝑖𝑖𝑖𝑖𝑖 𝐁𝐁𝑖𝑖𝑖𝑖𝑖𝑖 𝜃𝜃3 3 Identifying θ1 as𝜃𝜃 causal impact of reform requires, for one thing, the introduction of reform is random across villages. Nevertheless, given that the government selected pilot villages on a rolling basis, introduction of policy might correlate with village characteristics (i.e., the quasi- random implementation). We thereby control for village covariates in such as water scarcity in terms of village historical precipitation, temperature and natural disasters (e.g., Olen et al., 𝐙𝐙𝑣𝑣 2016), in order to minimise correlation between and . Table 2 reports definition of the main variables used in this paper. 𝑇𝑇𝑖𝑖𝑖𝑖𝑖𝑖 𝜀𝜀𝑖𝑖𝑖𝑖𝑖𝑖 For another, identification requires that conditional on the baseline controls, the timing of reform is random within the village, that is, is uncorrelated with time-varying plot characteristics that affect the outcomes of interest through channels other than the reform. Sections 5.3 will use data to document that there are no pre-trends leading up to the first implementation of reform, and the rise in adoption of water-saving technologies accompanies the introduction of reform. Many of the explanatory variables in equation (1) do not vary across individuals. Rather, they vary at either the village level or the plot level. Since the timing of implantation of reform was determined at the village level, we cluster the standard errors at the village level in all regressions. Given the potential for within-group correlation of the residuals, we adjust all standard errors for potential clustering.

4. Data

4.1. Data source and descriptive statistics

Two surveys performed in 2013 and 2017 provide the data utilized for this study. In 2013, 502 potato growers living in 41 different villages of potato production area in Hebei Province and Inner Mongolia were randomly selected. We interviewed them about their production behaviours. The questionnaire also covered socioeconomic variables including household structure, labour market outcomes, and credit information, etc.

In 2017, 413 households of the previous sample are successfully tracked. We included them in the second survey and aimed to measure planting and irrigating behaviour of farmers after policy of water price reform and irrigation property reform was implemented. For the missing sample, we randomly selected the same amount of new potato growers in the same villages as a substitution. The effective sample size of the survey data in 2017 is 499, of which 289 from Inner Mongolia and 210 from Hebei Province. For each household, we investigated production information of the two largest plots of it during the last planting season (except for those who only own one plot). Finally we get a household panel in 2013 and 2017, including 413 rural households and with their 1106 plots. 378 of them are “irrigable plots”, indicating that these plots were irrigated in both 2013 and 2017. Others are not irrigated in 2013, and we call them “drought plots”. The sample comes from five counties out of the two provinces.

From 2013 to 2017, the equivalent annual attrition rate of households equals to 4.6%, also lower than the median of 6%-7% among developing countries. 636 plots are irrigable ones in both 2013 and 2017. We include these irrigable plots as our main regression sample. Summary statistics are in Table 3.

Table 3 Definition of variables and descriptive statistics

2013 2017

Standard Standard Number of Variable Definition Mean Mean deviation deviation observations

Within irrigable plots

1=flood irrigation; Saving1 2=large sprinkler irrigation; 2.13 1.24 3.06 1.15 378 3=micro spray irrigation; 4=drip irrigation

Saving2 0=flood irrigation; 0.48 0.50 0.80 0.40 378 1=any WSI

Saving3 0=flood irrigation 0.06 0..24 0.15 0.36 162 1=large sprinkler irrigation 0=flood irrigation Saving4 0.93 0.25 0.96 0.21 244 1=micro sprinkler or drip irrigation

Saving5 0=flood irrigation 0.47 0.50 0.79 0.41 365 1=spray or drip irrigation Wellproperty the original property of 1.55 0.71 1.54 0.69 378 irrigation wells in 2013 Treated 0=untreated villages; 0.36 0.48 0.37 0.48 378 villages 1=treated villages

The average treatment DDD effect 0 0 0.83 1.19 378 DDD=Wellproperty*Year dummy*Treated villages

Waterfee Unit water price 0.75 1.90 1.75 2.28 378 (yuan/mu/tons of water) Unit cost of well Wellcost construction (yuan per 37.72 84.95 75.70 168.73 378 meter) Wellsubside Unit subsidy of well 4488.59 22792.21 3913.27 15564 378 construction(yuan) Unit cost of irrigation Equipcost equipment construction 130.21 261.25 843 4095.73 378 (yuan per depth of well) Unit subsidy of irrigation Equipsubside equipment construction 30.22 199.68 344.91 1554.75 378 (yuan per unit land) Area Cultivated area of the 9.80 7.88 9.69 8.43 378 plot(mu) Topography 1="Plain"; 2="Hilly land"; 1.51 0.64 1.31 0.51 378 3="Mountain land". 1="clay"; 2="Sand"; Soil 3="Loam"; 4="Saline 1.65 0.89 1.78 0.69 378 land"; 5="Loess"; 6="Black soil" 1="Barren land"; Fertility 2="General land"; 1.73 0.59 1.77 0.64 378 3="Fertile land"

Whether plot i has been Reconstruction reconstructed by the 1.78 0.41 1.46 0.50 378 investigation year, 1="Yes"; 0="No"

Tenure The security of land 14.21 3.65 19.30 3.24 378 property right of plot i Famwealth Logarithm of family 8.82 1.02 10.02 0.92 378 wealth(yuan per household) Within drought plots Saving 0=drought plot; 1=irrigable 0.34 0.47 0.47 0.50 728 plot 0=drought plot; 1=flood irrigation; Saving0 0.23 0.42 0.21 0.41 277 2=large sprinkler irrigation; 3=micro spray irrigation; 4=drip irrigation

Saving11 0=drought plot; 0.23 0.42 0.78 0.42 97 1=flood irrigation

Saving22 0=drought plot; 0 0 0.36 0.81 55 1= large sprinkler irrigation

Saving33 0=drought plot; 0.06 0.25 0.61 0.50 96 1=micro spray irrigation

Saving44 0=drought plot; 0.08 0.28 0.83 0.38 101 1=drip irrigation Saving55 0=drought plot; 1=micro 0.14 0.35 0.87 0.34 118 spray or drip irrigation treated 0.41 0.49 0.39 0.49 728

The average treatment DID effect 0 0 0.39 0.49 728 DID=Treated villages*year dummy

Nwaterfee 2.37 4.06 2.25 3.66 277

Nwellcost 93.16 216.50 83.84 197.07 277

Nwellsubside 4593.22 21386.65 4368.75 20664.93 277

Nequipcost 737.86 1711.66 810.71 1631.43 277

Nequipsubside 107.08 480.60 150.69 570.38 277

Area The same as above 6.99 6.74 6.35 6.77 728

Topography The same as above 1.87 0.68 1.65 0.69 728 soil The same as above 2.28 1.66 3.38 8.89 728

Fertility The same as above 2.01 0.63 1.95 0.64 728

Reconstuction The same as above 1.92 0.26 1.74 0.44 728

Tenure The same as above 14.04 4.60 18.12 5.01 728

Famwealth The same as above 8.70 1.24 9.89 1.00 728 Note: Summary statistics are based on 318 households (who irrigate during production) and 636 plots in the sample. For some households (about…) we choose only one plot.

4.3. Trends in uptake of water-saving technologies

Due to water rights policy as well as technological progress, Chinese farmers’ awareness of water conservation has gradually increased recently. Trends in uptake of water-saving technologies are shown in Figure 2. In the sample we surveyed, from 2013 to 2017, percentage of flood irrigation among irrigable plots dropped from 69.5% to 30.5% and drip irrigation increased from 25.8% to 74.2%. The adoptions of large sprinkler irrigation and micro spray irrigation have not changed much, specifically, from 47% to 53% and 52.6% to 47.4%, respectively. Table 4 reports the changes of variation in irrigation property rights as well as the proportion of various irrigation methods during the reform.

Figure 2. Changes in uptake of water-saving technologies

drip irrigation

micro spray irrigation

2013 2017 large sprinkler irrigation

flood irrigation

0% 20% 40% 60% 80% 100% 120%

Table 4. Changes in irrigation property and water-saving technologies

Property of irrigation wells Water saving Collective ownership Shared ownership Private ownership technology 2013 2017 2013 2017 2013 2017 1(Flood irrigation) 77.9% 72.1% 11.8% 20.9% 10.3% 7%

2(Large sprinkler irrigation) 90% 81.7% 5% 10% 5% 8.3%

3(Micro spray irrigation) 52.5% 68.3% 40.7% 24.4% 6.8% 7.3%

4(Drip irrigation) 54.3% 66.3% 32.6% 23.1% 13.1% 10.6%

Total 170 139 55 64 29 62

5. Estimation results

5.1 Benchmark results for irrigable plots

We choose different measurements of water saving variable to see the effect of irrigation property reform on farmers’ behaviour changes in detail. We do not obtain similar estimates using these alternative measurements.

Table 5 reports the estimation results of irrigable plots. The coefficient of average treatment effect of column 1 and column 2 are similarly insignificantly negative, which indicates that the reform wouldn’t significantly affect farmer’s behaviour of irrigable plots in an overall measurement of adoption of water saving technologies; neither did it encourage farmers with irrigable plots move from large sprinkler irrigation to micro spray irrigation. However, we can see a different result in Column 3. With an alternative water-saving measure that 0 stands for “flood irrigation” and 1 stands for “large sprinkler irrigation”, we get a statistically significant result, indicating that the treatment has a positive effect on improving flood irrigation to large sprinkler irrigation. It shows that to some extent farmers’ water-saving behavior was changed by the irrigation property reform, yet irrigable plots farmers are only willing to move a little step forward to save water. Specifically, for irrigable plots, after the reform wave, farmers’ adoption of large sprinkler irrigation was improved by 20.2%. This result is significantly positive at least at the significance level of 5%. In column 4, when we check the estimator in order to see whether the reform would give impetus to farmers’ changing from flood irrigation to spray or drip irrigation, we still get a positive coefficient of average treatment effect, though not significant. It also indicates that at least the reform encourages farmers to use less flood irrigation.

Table 5. DDD Estimates of the subsample of irrigable plots

Outcomes Independent Variables (1) (2) (3) (4) (5)

Saving1 Saving2 Saving3 Saving4 Saving5

-0.274 -0.113 0.202** 0.010 -0.112 DDD (0.268) (0.105) (0.082) (0.031) (0.106)

Individual Controls Yes Yes Yes Yes Yes

Village Controls Yes Yes Yes Yes Yes

Village-time Dummies Yes Yes Yes Yes Yes

Plot Controls Yes Yes Yes Yes Yes

Number of observations 378 378 162 223 346

R-squared 0.408 0.398 0.310 0.079 0.412

Notes: The table reports DDD estimates for subsample of irrigable plots. The unit of observation is one plot. “Saving” to “Saving4” from the first to the fourth column are variables related to adoption of water saving technology. They are different measurements of farmers’ water saving behaviour. “Saving1” is a categorical variable values from 1 to 4, namely, 1=“flood irrigation”, 2=“large sprinkler irrigation”, 3=“micro spray irrigation” and 4=“drip irrigation”. “Saving2”, “Saving3” and “Saving4” are all binary variables. For “Saving2”, 0=flood irrigation; 1=any WSI. For “Saving3”, 0=“flood irrigation” and 1=“large sprinkler irrigation”. For “Saving4”, 0=“large sprinkler irrigation” and 1=“micro sprinkler or drip irrigation”. For “Saving5”, 0=“flood irrigation” and 1=“spray or drip irrigation”.

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

5.1.1 Sources of variation for irrigable plots

To illustrate the results of this paper is not accidental, sources of variation were performed in this paper. We restrict sample according to initial irrigation property structures, and carries out the same triple differential estimation as before in order to show that the estimation results in this paper are not affected by original property structure of irrigation wells.

Variation in regional economic institutionalization is likely to be the result of a wide range of factors (J.M.Grieco, 1997). Changes in well properties as well as the reform treatment are important sources of variations. Therefore, in this section, we estimate a triple difference model of heterogeneous original property of irrigation wells examine the sources of plots heterogeneity. Firstly, we restrict sample to those irrigable plots of which the original property is collective ownership, i.e., equals to 1, to check differences between treated and untreated villages at = 1. Table 6 presents data on the distribution of original well property across all plots in our 𝑃𝑃𝑖𝑖𝑖𝑖 sample. It shows that we get similar results as the previous DDD estimation. The estimated 𝑃𝑃𝑖𝑖𝑖𝑖 coefficient of the intersection term × _ × _ showed in Table 6 is significantly positive at the significance level of 1%, which indicates that the effects of original well property are similar across𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 treated𝑂𝑂𝑂𝑂 and𝑌𝑌𝑌𝑌 untreated𝑌𝑌𝑌𝑌 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 villages.𝑑𝑑 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 In other𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 words,𝑑𝑑 untreated villages are proper counterfactuals for the treated villages of the same collective ownership.

Table 6. Result of sources of variation, p==1

Sources of variation 1.1 Independent Variables Saving1 Saving2 Saving3 Saving4 Saving5

-0.422 -0.327** 0.359*** 0.052 -0.329* DDD (0.359) (0.157) (0.179) (0.160) (0.165)

Individual Yes Yes Yes Yes Yes Controls

Village Yes Yes Yes Yes Yes Controls

Plot Controls Yes Yes Yes Yes Yes

Village-time Yes Yes Yes Yes Yes dummies

Observations 244 244 112 143 233

R-squared 0.431 0.430 0.317 0.115 0.452

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

Ideally, we would prefer to continue doing the same estimation at = 2 or = 3. Unfortunately, we didn’t get enough observations for the third and fourth column of Table 7, 𝑃𝑃𝑖𝑖𝑖𝑖 𝑃𝑃𝑖𝑖𝑖𝑖 which indicates that in these two cases the results are almost completely driven by " = 1" individuals. 𝑃𝑃𝑖𝑖𝑖𝑖 Table 7. Result of sources of variation, p==2 or p==3

Sources of variation 1.2 Independent Variables Saving1 Saving2 Saving3 Saving4 Saving5

-0.059 -0.013 No obs. No obs. -0.013 DDD (0.222) (0.088) (0.088)

Individual Yes Yes Yes Controls

Village Yes Yes Yes Controls

Plot Controls Yes Yes Yes

Village-time Yes Yes Yes dummies

Observations 113 113 113

R-squared 0.538 0.529 0.528

Secondly, we restrict sample to treated villages to compare treated and untreated of the same original property structure. The results are showed in Table 8. The insignificant estimators from column 1 to 5 mean that no significant unobserved time specific effects affecting the treated villages independently of the reform.

Table 8. Result of sources of variation, t==1

Sources of variation 2 Independent Variables Saving1 Saving2 Saving3 Saving4 Saving5

-0.215 0.018 0.043 -0.044 0.037 DDD (0.239) (0.082) (0.101) (0.131) (0.096)

Individual Yes Yes Yes Yes Yes Controls

Village Yes Yes Yes Yes Yes Controls

Plot Controls Yes Yes Yes Yes Yes

Village-time Yes Yes Yes Yes Yes dummies

Number of 161 161 60 113 149 Observations

R-squared 0.444 0.448 0.621 0.185 0.469

5.2 Benchmark results for drought plots

Drought plots were not irrigated in 2013, so there wouldn’t be a variable denotes the original

property structure of this subsample. The identification strategy assumes that the introduction of

irrigation property-rights reform was quasi-random once village-specific time trends and village and year fixed effects are included. Specifically, we use a difference-in-difference strategy, where we compare the evolution of household outcomes in villages that have had the reform in villages that have not yet implemented the reform. The baseline equation characterising the effect of reform is:

= + + + + + + + + + + (2)

𝑦𝑦𝑖𝑖𝑖𝑖𝑖𝑖 𝛼𝛼 𝜃𝜃1𝐷𝐷𝑡𝑡 𝜃𝜃2𝑇𝑇𝑣𝑣 𝜆𝜆𝐷𝐷𝑡𝑡𝑇𝑇𝑣𝑣 𝛽𝛽1𝑋𝑋𝑖𝑖𝑖𝑖𝑖𝑖 𝛽𝛽2𝑋𝑋ℎ𝑣𝑣𝑣𝑣 𝛽𝛽3𝑋𝑋𝑣𝑣𝑣𝑣 𝛽𝛽4𝑍𝑍𝑣𝑣 𝛾𝛾𝑐𝑐𝑡𝑡 𝑣𝑣𝑖𝑖 𝜀𝜀𝑖𝑖𝑖𝑖𝑖𝑖

where yivt stands for other reform outcomes of plot in village during the calendar year except for changes of irrigation technology, such as whether or not this plot is irrigated by 𝑖𝑖 𝑣𝑣 𝑡𝑡 groundwater and the ownership of irrigation well chose by farmers. These outcomes are a function of: the time dummy variable denotes whether the time of data collection is before or after irrigation property reform, thus it takes the value of zero in the year 2013 and one in 2017; 𝐷𝐷𝑡𝑡 the irrigation property reform Tivt taking the value of one if the reform takes place in plot of village during the year The average treatment effect, , is the multiplication of and . . 𝑖𝑖 Descriptions of other control variables are the same as before. 𝑣𝑣 𝑡𝑡 𝐷𝐷𝑡𝑡𝑇𝑇𝑣𝑣 𝐷𝐷𝑡𝑡 𝑇𝑇𝑣𝑣 Similar as the benchmark results of irrigable plots, we choose different measurements of water saving variable to see the effect of irrigation property reform on farmers’ behaviour changes in detail. We do not obtain similar estimates using these alternative measurements.

Table 9 reports the estimation results of drought plots. The coefficient of average treatment effect of column 6 is significantly positive, which indicates that the reform would affect farmer’s motivation of changing drought plots into irrigated ones. We did not have significant results in column 7 and 8, thus the reform did not encourage farmers with drought plots move to flood irrigation or large sprinkler irrigation. However, we can see a different result in the last 3 columns. The statistically significant results indicate that the treatment has a positive effect on improving drought plots to irrigable plots with water-saving technology. It shows that farmers’ water-saving behavior was changed by the irrigation property reform, and drought plots farmers are willing to move directly to advanced water-saving technologies like micro spray irrigation and flood irrigation. Specifically, for drought plots, after the reform wave, farmers’ adoption of micro spray irrigation and drip irrigation was improved by more than 25%. This result is significantly positive at least at the significance level of 5%.

Table 9. DID Estimates of the subsample of drought plots

(6) (7) (8) (9) (10) (11) (12) Independent Variables Saving Saving0 Saving11 Saving22 Saving33 Saving44 Saving55

0.428** 0.293 0.339 0.177 0.254** 0.393** 0.399*** DID (0.161) (0.145) (0.404) (0.138) (0.104) (0.179) (0.132)

Individual Controls Yes Yes Yes Yes Yes Yes Yes

Village Controls Yes Yes Yes Yes Yes Yes Yes

Village-time dummies Yes Yes Yes Yes Yes Yes Yes

Observations 728 277 97 55 70 101 118

R-squared 0.294 0.260 0.524 0.570 0.726 0.752 0.728

Saving: 0=drought plots; 1=any irrigable plots (the full sample for drought plot)

“Saving0” is a categorical variable values from 0 to 4, namely, 0=“drought plots”, 1=“flood irrigation”, 2=“large sprinkler irrigation”, 3=“micro spray irrigation” and 4=“drip irrigation” (this regression and the below ones include the variables that related to irrigation, such as Waterfee, Wellcost, etc.)

Saving11: 0=drought plots; 1=flood irrigation

Saving22: 0=drought plots; 1=large sprinkler irrigation

Saving33: 0=drought plots; 1=micro spray irrigation

Saving44: 0=drought plots; 1=drip irrigation

Saving55: 0=drought plots; 1=micro spray or drip irrigation

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

5.3 Placebo regression To illustrate the results of this paper is not accidental, two kinds of placebo tests were performed in this paper. We take methods of falsification test. It is based on the assumption of irrigation property reform pilot implementation. Specifically, we firstly restrict sample to the year before reform waves, i.e., 2013, to test the pre-existing trends of treated villages; then restrict sample to the untreated group to rule out the possibility that significant effect of the reform on treated group comes from the deterioration of control group.

5.3.1 Placebo regression for irrigable plots

Firstly, we need to test the authenticity of the assumption that there are no pre-existing trends affecting outcomes of villages of collective ownership wells even before the treatment starts and thus confound the estimates of the treatment effects. That is, we restrict the subsample to year 2013 and repeat the DDD estimation as what we’ve done in model (3). We assign "treatment" to treated villages of = 1. Table 10 reports the result of core explanatory variable. The insignificant positive coefficient of average treatment effect proves that out test on 𝑃𝑃𝑖𝑖𝑖𝑖 no pre-existing trends within irrigable sample has passed.

Table 10. Test result of pre-existing trends for irrigable plots

Placebo Regression 1 Independent Variables Saving1 Saving2 Saving3 Saving4 Saving5

0.345 0.177 0.079 0.045 0.137 DDD (0.240) (0.102) (0.069) (0.058) (0.095)

Individual Controls Yes Yes Yes Yes Yes

Village Controls Yes Yes Yes Yes Yes

Plot Controls Yes Yes Yes Yes Yes

Village-time Yes Yes Yes Yes Yes dummies

Observations 82 82 76 41 80

R-squared 0.604 0.597 0.4342 0.926 0.589

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

Secondly, we turn to test whether their exist deterioration of untreated group to exclude the confounding by doing placebo regressions on the sample irrigable plots. In order to compare the samples of treatment group and control group under the same property rights of irrigation wells, we further confine the sub-samples to control group and repeat DDD regression. The insignificant estimates in Table 11 indicate that the treatment effect is not driven by the deterioration of untreated results resulting from the reform of irrigation property rights. Therefore, we can conclude that for sample plots, there is no unobserved time effect on untreated villages independent of the reform.

Table 11. Test result of untreated group’s deterioration for irrigable plots

Placebo regression 2 Independent Variables Saving1 Saving2 Saving3 Saving4 Saving5

-0.186 -0.087 0.102 -0.391 -0.130 DDD (0.283) (0.107) (0.059) (0.270) (0.120)

Individual Yes Yes Yes Yes Yes Controls

Village Yes Yes Yes Yes Yes Controls

Plot Controls Yes Yes Yes Yes Yes

Village-time Yes Yes Yes Yes Yes dummies

Number of 258 258 192 72 252 Observations

R-squared 0.686 0.689 0.405 0.614 0.697

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level. Taken together, the above series of results of subsample regressions show that the benchmark conclusions obtained in this paper are relatively stable. They have a consistency about the sources of plot heterogeneity.

5.3.2 Placebo regression for drought plots

Firstly, we need to test the authenticity of the assumption that there are no pre-existing trends affecting outcomes of treated villages even before the treatment starts and thus confound the estimates of the treatment effects. That is, we restrict the subsample to year 2013 and repeat the DID estimation as what we’ve done in equation (2). Table 12 reports the result of core explanatory variable. The insignificant coefficients of average treatment effect prove that out test on no pre-existing trends within irrigable sample has passed. Although the result in column 1 of Table 12 is significant, the negative sign still exclude the positive pre-existing assumption of treated group.

Table 12. Test result of pre-existing trends for drought plots

Placebo regression 1 Independent Variables Saving Saving0 Saving11 Saving22 Saving33 Saving44 Saving55

-0.172** 0.031 -0.152 -0.101 0.036 -0.025 -0.013 DID (0.075) (0.024) (0.128) (0.121) (0.046) (0.048) (0.034)

Individual Controls Yes Yes Yes Yes Yes Yes Yes

Village Controls Yes Yes Yes Yes Yes Yes Yes

Village-time dummies Yes Yes Yes Yes Yes Yes Yes

Observations 349 108 65 36 47 78 91

R-squared 0.112 0.048 0.657 0.694 0.884 0.823 0.829

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level. Secondly, we turn to test whether their exist deterioration of untreated group to exclude the confounding by doing placebo regressions on the subsample of drought plots. In order to compare the samples of treatment group and control group under the same property rights of irrigation wells, we further confine the sub-samples to control group and repeat DID regression. We did not get enough observations in the fourth and fifth columns of Table 13. The insignificant negative estimates in the last two columns of Table 13 indicate that the treatment effect is not driven by the deterioration of untreated results resulting from the reform of irrigation property rights. Therefore, we can also conclude that for sample plots, there is no unobserved time effect on untreated villages independent of the reform.

Table 13. Test result of untreated group’s deterioration for drought plots

Placebo regression2 Independent Variables Saving Saving0 Saving11 Saving22 Saving33 Saving44 Saving55 -0.210 0.025 0.072 No obs. No obs. -0.085 -0.003 DID (0.127) (0.071) (0.303) (0.293) (0.005)

Individual Yes Yes Yes Yes Yes Controls

Village Yes Yes Yes Yes Yes Controls

Plot Controls Yes Yes Yes Yes Yes

Village-time Yes Yes Yes Yes Yes dummies

Observations 301 168 35 60 66

R-squared 0.676 0.197 0.609 0.692 0.638

5.4 Robustness checks

The above benchmark empirical results show that irrigation property reform pilot has increased

the willingness of farmers to save water, and urged them to carry out more advanced irrigation

technologies. Now we undertake a number of robustness or sensitivity checks of subsamples.

Because we have estimates for effects of only one side of irrigation property reform, we verify

that our results are not offset by another potential impact on farmers’ behaviour of this policy, namely, to save water costs by constructing irrigation wells. We also check our results for robustness to the omission of this other-side effect of the reform.

5.4.1 Robustness checks for irrigable plots

Firstly, we have to consider the new irrigation wells constructed between year 2013 and 2017. After the irrigation property reform, in order to save irrigation cost, irrigable households might choose to construct new wells instead of adopting water-saving facilities. Thus, new wells construction is a confounding factor of water saving behaviour. In our sample, 80 out of 403 irrigation wells were newly built between 2013 and 2017. We make an additional regression on the subsample of those irrigable plots. A categorical variable values from 0 to 3, “Y1”, was assigned as explained variable to measure the use of new irrigation wells use as the explained variable. 0 stands for “no newly built irrigation well was used in plot ”; 1 stands for “the

𝑖𝑖 property of the newly-built irrigation well used in plot is collective ownership”; 2 stands for “plot uses a new shared ownership well”, 3 stands for “a newly built private well was used by 𝑖𝑖 plot ”. We ignore whether the construction time of wells are before or after irrigation property 𝑖𝑖 reform and just focus on whether drought plots farmer started to use more wells because of the 𝑖𝑖 reform. Then we redo the DDD estimation.

The first column of Table 14 reports the results of robustness test for the irrigable sample plots. We get an insignificant coefficient of average treatment effect, which is a mostly ideal situation of this paper. It indicates that we can reject the assumption of existence of confounding factor, namely, we don’t have enough evidence to show that farmers use the strategy of constructing new irrigation wells to offset the behaviour of installing water-saving facilities.

Secondly, for irrigable plots, we check whether farmers use more private-ownership irrigation wells after the reform to compensate for the increasing of irrigation cost. We set “Y2” as a binary variable, measuring changes in the property rights structure of irrigation wells brought about by irrigation property reform. Thus value 0 stands for collective ownership within the newly built wells, and 1 for shared and private wells. Results of DDD regression of equation (1) are also showed in the second column of Table 14. The insignificant coefficient of average treatment effect indicates that changing the structure of well property is not a confounding factor of taking water saving technology for irrigable plots. In other words, there’s no evidence that farmers with irrigable plots choose to use more private ownership wells to offset the installation of water saving facilities.

Table 14. Robustness check for irrigable plots

Robustness Check Independent Variables Y1 Y2

-0.320 -0.002 DDD (0.222) (0.013)

Individual Controls Yes Yes

Village Controls Yes Yes

Village-time Dummies Yes Yes

Plot Controls Yes Yes

Numbers of Observations 443 73

R-squared 0.428 0.971

Notes: Y1 values from 0 to 3. 0 means no new well is used in plot ; 1 means plot is irrigated by a new well of collective ownership; 2 means that property of the new well of plot is shared ownership; and 3 means plot is using a new private well. 𝑖𝑖 𝑖𝑖 𝑖𝑖 𝑖𝑖 Y2 is a binary variable. 0 means plot is irrigated by the newly-constructed well of collective ownership; 1 means

𝑖𝑖 that newly built well used by plot is a shared well or a private one.

Robust standard errors in parentheses𝑖𝑖 :

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

5.4.2 Robustness checks for drought plots

Table 15 reports the results of robustness test for drought plots. We get an insignificant coefficient of average treatment effect, which is a mostly ideal situation of this paper. It indicates that we can reject the assumption of existence of confounding factor, namely, we don’t have enough evidence to show that farmers use the strategy of constructing new irrigation wells to offset the behaviour of installing water-saving facilities.

Table 15. Robustness check for drought plots

Robustness Check Independent Variables Y3 Y4

0.009 -0.359 DID (0.012) (0.321)

Individual Controls Yes Yes

Village Controls Yes Yes

Village-time Dummies Yes Yes

Plot Controls Yes Yes

Numbers of Observations 728 72

R-squared 0.019 0.772

Notes: Y3 values from 0 to 3. 0 means no well is used in plot ; 1 means plot is irrigated by well of collective ownership; 2 means that property of well of plot is shared ownership; and 3 means plot is using a private well. 𝑖𝑖 𝑖𝑖 Y4 is a binary variable. 0 means in 2017, plot is𝑖𝑖 irrigated by well of collective ownership;𝑖𝑖 1 means that property of well of plot in 2017 is a shared ownership or a private well. 𝑖𝑖 Robust standard𝑖𝑖 errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

5.5 Mechanisms

So far the analysis is still unable to establish the exact casual mechanisms underlying farmers’ behaviour changes. In this section, we turn to the task of distinguishing between channels of causality. We examine several channels through which the irrigation property reform may affect farmers’ adoption of water saving technology. Combining individual-level survey data with respondents of village heads and villagers on social-related or information-related questions, we ask whether the reform effect was also affected by social-norm enforcement (M Jan Piskorski, A Gorbatâi, 2017), cultural sociology (Joas 2000; Fassin and Lézé 2014) or access to information. Meanwhile, we might also come to different conclusions of mechanism for drought group and irrigable group. Therefore, separately we test mechanisms of them with five potential social culture-related variables.

5.5.1 Mechanism tests for irrigable plots

Results of mechanism tests for irrigable plots are reported in Table 16. We find two mechanisms for irrigable plots through these tests, namely, farmers’ satisfaction on public irrigation facilities of the village as well as their unity to solve public problems. The negative effects of these two mechanisms also make sense. For the first mechanism, it shows that fully- equipped public infrastructure or solidarity of villagers would offset effect of the reform on farmers’ willingness to save water. But we still find that this variable pe se has a significant positive effect on farmers’ water saving behavior. For the next, similarly, if villagers are willing to solve public irrigation problems together, their willingness to invest personal irrigation facilities might be reduced.

One kind of mechanism, which is the article’s focus, is that the effect of reform policy on farmers’ behaviour was altered by cultural norms and social concepts/actions of the treated groups. To those who are highly satisfied with public irrigation facilities, the effect of irrigation property reform on farmers might be offset to some extent. However, we also noticed that this mechanism variable itself has a significantly positive effect on adoption of water saving technology, which indicates that satisfaction on public facility could also improve farmers’ virtue behaviour.

Also, the second column in Table 16 shows that although not acting as a significant mediator variable, punishment from public would urge farmers to change their behavior. It indicates that social punishment has a significant effect on villagers’ adoption of water saving technologies as well. In the last column, farmers’ access to information has a significant negative effect on their water saving behaviour. Empirical research supports this dual process of decision making. Vaisey (2009) found, for example, that respondents asked to recount how they made a decision in a situation in which they were unsure about what was right or wrong were as likely to offer an intuitive description as they were to offer one that spelled out social or economic consequences. Subsequent developments asserted and found empirical evidence to show that individuals will switch from a deliberate to an automatic process when they are cognitively overloaded and the situation is well understood (Schwartz 2010; Beyerlein and Vaisey 2013; Miles 2015). Therefore, the more they know about technology knowledge and other information, the more rational their decisions will be. In other words, their adoption of irrigation technology would be less likely driven by impulse or subconsciousness.

Table 16. Mechanism tests for irrigable plots

Outcomes

Independent Variables Model(8) Model(9) Model(10) Model(11)

Saving2 Saving2 Saving2 Saving2

0.287** 0.266** 0.288** 0.304** DDD (0.117) (0.122) (0.110) (0.121)

0.018*** satisfy (0.006)

-0.022* satisfy*DDD (0.011)

0.010* punishment (0.005)

-0.005 punishment*DDD (0.008)

0.007 solve (0.006)

-0.017* solve*DDD (0.010)

-0.014* information (0.007) information*DDD -0.014

(0.010)

Number of Observations 162 162 162 162

R-squared 0.542 0.531 0.531 0.539

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

5.5.2. Mechanism tests of drought plots

Table 17 reports results of mechanism tests for drought plots. We find that solidarity and mutual assistance of village a significant mechanism variable. The negative effect of this mechanism also makes sense. Of culture and social institutions, the residents of harmonious and friendly regions may be able to get help from others or collective more easily. Therefore, help or assistance from other people would offset farmers’ willingness to save water.

Also, the last column in Table 17 shows that although not acting as a significant mediator variable, being accessed to information would encourage farmers to take water efficient irrigation methods. It indicates that information of technology has a significant effect on villagers’ adoption of water saving technologies.

Table 17. Mechanism tests for drought plots

Outcomes

Independent Variables Model(12) Model(13) Model(14) Model(15) Model(16)

Saving5 Saving5 Saving5 Saving5 Saving5

0.410* 0.199 0.400** 0.422** 0.236 DID (0.211) (0.187) (0.148) (0.161) (0.163)

0.028 Satisfy (0.035)

-0.035 Satisfy*DID (0.052)

Punishment 0.000 (0.017)

0.030 Punishment*DID (0.036)

-0.002 Solve (0.020)

-0.053 Solve*DID (0.036)

-0.013 Help (0.013)

-0.055* Help*DID (0.028)

0.002 Information (0.024)

0.043 Information*DID (0.034)

Numbers of Observations 276 276 276 276 277

R-squared 0.269 0.268 0.271 0.276 0.263

Robust standard errors in parentheses:

***Signifcant at the 1 percent level.

**Signifcant at the 5 percent level.

*Signifcant at the 10 percent level.

6. Conclusion

It has been the purpose of this article to introduce triple differences method for policy evaluation for the discussion of problems to the economic rationalization of irrigation property reform as well as constructing private-property irrigation wells. The empirical results indicate that to some extent farmers’ water-saving behavior was changed by the irrigation property reform. Specifically, for irrigable plots, after the reform wave, farmers’ adoption of large sprinkler irrigation was improved by 20.2%. For drought plots in 2013, farmers tend to change to irrigable plots after the reform, and, their chances of moving directly to most advanced water saving technology was improved by more than 25%. While many important aspects of the problem (such as alternative variables, uncertainty and political factors) have been ignored, the results of the analysis seem to be quite robust.

We also show that most of the impact of irrigation property reform is through factors that are internal to the individual as well as external social environment, such as cultural norms, beliefs, and values (N. Nathan and W. Leonard, 2011), like satisfaction to public irrigation facilities of the village, or help from village collective or other villagers. Even more broadly, we hope that mechanism on norms will contribute to the conversation between rational choice theorists and the literature in cultural sociology and anthropology according to which social actors make decisions through automatic processes informed by culture and values as much as through deliberate and rational processes (Joas 2000; Fassin and Lézé 2014). Also, with the context of norm enforcement, further studies could examine conditions under which individuals punish others because of the social network that surrounds them versus their internalized belief that punishing norm violators is the right thing to do. These conditions can then be used to enrich our understanding of behavioral changes of individuals.

To conclude, the goal of water rights reform in China is to save irrigation water in agricultural sector. Indeed, we found that the incentives of reform lead to the change of farmers’ behaviour on adopting water-efficient technology. However, many empirical experiences in developing countries proved that irrigation technology promotion and implementation does not necessarily lead to water efficiency. Farmers’ education level, and whether they can use the advanced facilities correctly, for instance, may also affect irrigation efficiency. Although we know there is potential to increase physical and economic water productivity, adoption of practices that enhance water productivity is slow. While society or government may have the incentives to increase water productivity, agricultural producers may not. Producers manage labour and other inputs to get better economic gains, and the incentive for increasing water productivity is, typically, not high on their agenda. The adoption of techniques to improve water productivity will, therefore, require an enabling policy and an institutional environment that aligns the incentives of producers, resource managers and society, and provides a mechanism for dealing with trade-offs. Thus, we will express the hope that further evaluations of water quantity and water efficiency will lead to a deeper understanding of these problems of water rights-related policies.

Future research should focus on identifying the types of changes households undertake to better assess the long-run impacts of different norm-based strategies. Future research should also elucidate the short-run and long-run welfare implications of using norm-based strategies, a topic which is currently absent in the literature, but one which economists are well placed to address.

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