This dissertation analyzes current patterns and expected benefits of allocation of water
in Kirindi-Menik-Kumbukkan composite river basin in southeastern Sri Lanka. The Veheragala
Diversion Project changed the historical flow regime of Menik Ganga River by diverting water to
the Kirindi Oya Basin for irrigation. This diversion reduced water flow to the Yala Protected Area
Complex, a unique, nationally and globally important wildlife refuge situated further downstream,
but dry season flows were enhanced. This study develops and applies empirical methods to
estimate economic benefits related to two major uses: irrigation and environment.
A procedure to quantify water applied on rice farms, based on farmer recall, was
developed and empirically used in the Kirindi Oya Irrigation and Settlement Project (KOISP),
where differential access to water between its two subareas exists. A production function for rice
with water quantity as an input was estimated. Plans to allocate newly diverted water to
maximize system-wide annual net benefits by equating marginal value products of water were
generated. The value of water for the environment was estimated through a contingent
valuation study that asked respondents about their willingness to pay for water releases through
the YPC. Benefits were expected as emanating from non-use values of water.