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Accounting for well capacity in the economic decision making of groundwater users

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  • Collie, Samuel
Abstract
Water conflicts unfolding around the world present the need for accurate economic models of groundwater use which couple traditional producer theory with hydrological science. We present a static optimization problem of individual producer rents, given groundwater as a variable input to production. In a break with previous literature, the model allows for the possibility of binding constraints on well capacity which occur due to the finite lateral speed at which water can move underground. The theoretical model predicts that when well yield constraints bind, producers maximize profit by extracting as much water as possible. Therefore, if producers are constrained, regions with more available water should consume more of it. We test this hypothesis empirically by modelling the effect of well yields on crop cover and water usage data. Our empirical results reveal that areas with higher average well capacities tend to plant a more water intensive mix of crops, and use more groundwater. This straightforward result comes in contrast to previous economic models of groundwater use, which have assumed an interior solution to the irrigators’ profit maximization problem. This research provides important inroads to understanding what really drives irrigators’ behavior on the High Plains; a crucial step towards conserving this precious resource.

Suggested Citation

  • Collie, Samuel, 2015. "Accounting for well capacity in the economic decision making of groundwater users," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205783, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205783
    DOI: 10.22004/ag.econ.205783
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    References listed on IDEAS

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    1. Nicholas Brozović & David Sunding & David Zilberman, 2006. "Optimal Management of Groundwater over Space and Time," Natural Resource Management and Policy, in: Renan-Ulrich Goetz & Dolors Berga (ed.), Frontiers in Water Resource Economics, chapter 0, pages 109-135, Springer.
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    7. Jordan F. Suter & Joshua M. Duke & Kent D. Messer & Holly A. Michael, 2012. "Behavior in a Spatially Explicit Groundwater Resource: Evidence from the Lab," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(5), pages 1094-1112.
    8. Michael R. Moore & Noel R. Gollehon & Marc B. Carey, 1994. "Multicrop Production Decisions in Western Irrigated Agriculture: The Role of Water Price," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(4), pages 859-874.
    9. Guilfoos, Todd & Pape, Andreas D. & Khanna, Neha & Salvage, Karen, 2013. "Groundwater management: The effect of water flows on welfare gains," Ecological Economics, Elsevier, vol. 95(C), pages 31-40.
    10. Lisa Pfeiffer & C.-Y. Cynthia Lin, 2014. "The Effects of Energy Prices on Agricultural Groundwater Extraction from the High Plains Aquifer," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1349-1362.
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    Cited by:

    1. Ayres, Andrew B. & Edwards, Eric C. & Libecap, Gary D., 2018. "How transaction costs obstruct collective action: The case of California's groundwater," Journal of Environmental Economics and Management, Elsevier, vol. 91(C), pages 46-65.

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