economic purposes. Conspicuous examples are the pricing of energy and extractive water below market prices. Underpricing tends also to increase the scale of the externality, e.g.excessive irrigation water use can cause waterlogging and salinization of soils"(Pearce 1990). The estimates here are not social cost estimates.

In the Valley of Mexico, marginal cost of water supply is Mex$4,500 (all costs on a per cubic meter basis). On a volume basis, 82 percent of water goes to households for domestic consumption, 10 percent to industry, and the remaining 8 percent to agriculture for irrigation. Average prices are Mex$2,850 for households, Mex$4,000 for industry, and zero for agriculture. Sixty percent of households pay according to their consumption (that is, have a meter); the remaining 40 percent pay on average a little more (15-20 percent; CNA, personal information). Thc average price is thus Mex$2,900, so that the difference between marginal social cost and price is Mex$1,600/m3. Multiplying by the annual consumption of 1.8 billion m3 gives an annual subsidy of Mex$2.88 trillion or US$1 billion.

Irrigation Waters. The subsidies to water consumption in MCMA can be compared to those given to farmers for irrigation in agriculture. There are three major potential environmental effects from such subsidies, all applying to the case of groundwaters. The first is when the amount pumped is greater than the average recharge of the aquifer. This leads to an irreversible reduction of reservoirs, since water mines cannot be "refilled". Bajio, Central, and North-Central Mexico present this problem. The second is the intrusion of salty waters in the interface of the coastal aquifers, due to a lowering water table. This implies an irreversible lack of sweet water in the coastal aquifer. This may be the case in both North and South Baja California. Finally, excessive irrigation water use can cause waterlogging and salinization of soils: subsidies clearly provide an incentive to such excessive use. This applies to all regions in Mexico. An estimated 100,000 hectares of agricultural land in Mexico are saline due to excessive use of irrigation waters (out of a total of 600,000 hectares of soils affected by some kind of salinity effects).

Information is scarce for most parameters. The irrigated area in Mexico is 6 million hectares; 2 million hectares are irrigated with underground waters. Based on a few standard parameters,<sup>2</sup> " the implicit subsidy of US$82/hectares/year multiplied by the 2 million hectares gives a total annual subsidy of US$164 million. These subsidies refer to provision of water; the costs of bringing water from alternative sites are not estimated here. For the purpose of illustration, we present estimates of the costs of reclamation of saline soils : 465,000 hectares need reclamation _21. Average water diversion 9,000 m3/hectare/year, average pwnping depth 50 meters, an energy cost to farmers of US$28 mills/kwh and a marginal cost of US$61 mills/kwh. Such estimated parameters lead to a power demand of 1 Kw per hecrare and of 2,500 kwh of energy per hectare per year. 7hus the marginal cost of irrigation is US$152/hectare4'ear, while the average cost to farmers is US$70/hectare/year._ 21