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Trade-off between Ecosystem Services: Change in Economic Values of Veeranam Ecosystem Services due to Water Reallocation

S. Balamurugan


Increasing water demand forces the decision makers to reallocate water from one sector to another sector for efficient utilisation of available water. Water reallocation creates potential trade-off between the services generated by water resources thereby affecting Pareto optimality. Economic valuation of ecosystem services helps to understand the net economic benefits and costs associated with trade-offs. This paper analyses the change in economic values of ecosystem services, especially irrigation water and drinking water services due to water reallocation from Veeranam lake located at Cuddalore district of Tamil Nadu to Chennai city for domestic use. Production function method and opportunity cost method were used to estimate the marginal value of irrigation water and drinking water respectively. The economic value of irrigation water is estimated to be Rs. 36,83,87,041/year (1,52,858/ha/year) and the opportunity cost of drinking water is estimated to be Rs. 103,97,95,200/year (Rs. 4,31,450/ha/year). Although water reallocation generates the net economic benefit of Rs. 97.52 crores/year, the economic welfare of farmers has been declined. The paper suggests that the additional net economic benefit could be utilised by establishing market based instruments such as Payment for Ecosystem Services scheme in order to create win-win situation for all stakeholders.


Water Reallocation, Trade-off, Ecosystem Services, Economic Valuation, PES scheme

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