Small-scale private irrigation schemes have been the driving force behind the expansion of irrigated areas in Nigeria, despite government efforts to promote large-scale public irrigation schemes. This article empirically assesses the effect of unobserved transaction costs for Nigerian farmers" when investing in irrigation pumps, using the baseline survey data for the Second Fadama Development Program (Fadama II). The results suggest that the unobserved transaction costs can be as important as the factors determining the profitability of irrigation pump, emphasizing the importance of reducing transaction costs in addition to improving the environment for higher return from irrigation investment.