The Implications of Information Asymmetry for the Achievement of Australia's National Water Objectives

On 29th April 2008, Senator Penny Wong outlined details of Water for the Future; the Rudd Government’s $12.9 billion plan to secure the long term water supply of all Australians. Funding under Water for the Future will be used to support significant water reform across the country. In order to formulate strategies to achieve the objectives of the Plan, decision makers will require information related to the relative profitability of different irrigation activities, such as production costs and returns, as well as the potential irrigator response to and impacts of reductions in water availability or changes to water policy more generally. The aim of this paper is to highlight the potential for unexpected outcomes to arise from policies which are formulated in a world of information asymmetry. The heterogeneity of irrigation sectors and indeed individual irrigators within these sectors mean that actual impacts or responses will vary significantly between sectors/individuals. Hence while governments may try to predict the potential consequences/impacts of changes to water policy, the resulting outcomes may be far from what was intended.