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This paper investigates the effect of social capital between irrigation canal head-enders and tail-enders on their water allocation problem. Although social capital is considered to be an instrument for common pool resource management, a consensus has not been reached on its effect among heterogeneous players. In irrigation management, the water allocation problem between head-enders and tail-enders is one of these serious problems. Using unique natural and artefactual field experiment data as well as general household survey data collected by JICA, this study finds that social capital, especially trust toward their tail-enders, has a significantly positive effect on satisfaction with water usage among head-enders. Considering the fact that the incentive structure of irrigation water allocation for head-enders closely resembles that in the dictator and trust games, this finding also supports the validity of experimentally measured social capital. In addition, this study deals with the simultaneity bias between satisfaction level and experimentally measured social capital, and finds that OLS estimators are downward biased, which is consistent with the hypothesis that scarcity of resources enhances the level of social capital.

Social capital as an instrument for common pool resource management: a case study of irrigation management in Sri Lanka