A study of the required sustainability-driven institutional and behavioural mechanisms to tackle the anticipated implications of agricultural water price shocks: a system dynamics approach

Abstract Economic policies for managing agricultural water use are often complicated by the challenge of using water prices as an efficient economic tool when other non-economic concerns are involved in the decision-making process. This study aims to analyse the impact of water pricing policies on preserving agricultural water resources in Iran. This study applies a system dynamics approach to simulate the system performance and behaviour of stakeholders and the economic implications. Our finding shows that water pricing policies will likely fail due to low water price elasticity and if there are lack of institutional and physical infrastructure, alternative professions, manufacturing technology, education, and training opportunities. The results also illustrate how agricultural water price increase (AWPI) fails to reduce water consumption in the absence of an adequate institutional arrangement. Also, it shows how the lack of advanced institutional infrastructure in the presence of physical infrastructure enhances pervasive overuse and destructive competition among stakeholders by increasing the area under cultivation. In the discussion, the paper portrays a way out of the decision-making body by following AWPI effects on water conservation in the agricultural sector as the most significant water consumer. It investigates the absence and subsequent presence of specific institutional conditions and evaluates training and enhancing farmers' skills and alternative career source with higher income and technology as the architecture of good environmental governance. Finally, it concludes that a series of inclusive measures must be considered to increase the elasticity of the water price. These measures must stimulate farmers towards pursuing the goals of global sustainable development and enhancing social welfare