Agriculture sector has an important place in the economy of Kerman province. In this region the main source of water supply for agriculture is groundwater. The high rate of annual shortage in groundwater supplies is due to excessive pumping. With respect to this fact, economic valuation of water and considering the side effects of excessive pumping of groundwater supplies is extremely important.
With the aim of studying the above mentioned matters, suitable production function was estimated; and on the base of this variation, economic value was calculated per unit of water.
At the second stage of the research, the cost and social welfare functions were estimated; then the peripheral effects of excessive pumping were calculated, using social welfare function. Finally, by production function, the demand elasticity for input water was calculated. The findings indicated that the marginal production of wheat per unit of water was higher than the corresponding cost of pumping, and that excessive pumping of water would decrease in the social welfare rate of wheat farmers.
The research concluded that increasing the pumping costs would not lead to any significant impact on the rate of extraction, so the best way to increase irrigation efficiency is to promote efficient irrigation methods.