Decentralizing corruption: Irrigation reform in Pakistan

•Irrigation reform in Pakistan transferred control of canals to farmer organizations.•Reform led to a substantial increase in water theft by upstream irrigators.•Reform led to an 11 percent wealth redistribution along a channel.•Redistribution was exacerbated where there was greater lobbying influence upstream. Does decentralizing the allocation of public resources reduce rent-seeking and improve equity? We study a governance reform in Pakistan’s vast Indus Basin irrigation system, where corruption is endemic. Using canal discharge measurements across Punjab province from 2006 to 2014, we find that water theft increased on channels taken over by local farmer organizations compared to those that remained bureaucratically managed, reducing agricultural surplus and substantially redistributing wealth from downstream to upstream landowners. Water theft increased by more along channels with relatively larger (more influential) upstream landowners, suggesting that the political-economy context is critical to the success, or lack thereof, of decentralization.