Whereas irrigation plays a crucial role in improving agricultural productivity, it has resulted in waterlogging and salinity problems in Pakistan due to both water seepage from canals and overdoses of water encouraged by inappropriate water pricing practices.1 As many as 2.2 million hectares of land forming 13 percent of the cultivated area in Pakistan suffer from an acute problem of waterlogging and salinity, i.e., water table is less than 5 feet from the normal surface level. [See Government of Pakistan (1993)]. Despite the government’s effort to resolve the problem through an expansive network of public tubewells under the salinity control and reclamation project (SCARP), the problem seems to have worsened over time. The higher water doses may increase the growth of output in the short run, but by degrading the agricultural lands and increasing impurities of potable water, etc., they adversely affect the long-run growth. These adverse effects of the inappropriate irrigation practices on agricultural productivity are generally not accounted for in the national income accounting system. Accordingly, there is a need to account for the forgone economic, social, and environmental benefits. In this regard, the environmental resource accounting provides a valuable information base for integrated development planning and policy. The approach allows for segregation and elaboration of all environment-related flows and stocks of traditional accounts, linkage of physical accounts with monetary environmental accounts and balance sheets, assessment of environmental costs and benefits, accounting for the maintenance of tangible wealth, and elaboration and measurement of the indicators of environmentally-adjusted production and income.