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Groundwater pumping and spatial externalities in agriculture

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  • Pfeiffer, Lisa
  • Lin, C.-Y. Cynthia

Abstract

We investigate the behavior of farmers who share an underground aquifer. In the case where seepage may occur the resource is nonexclusive, giving rise to a spatial externality whereby pumping by one user affects others nearby. Theoretically, these externalities are potentially important causes of welfare loss. Using a unique spatial data set of groundwater users in western Kansas, we are able to empirically measure the physical and behavioral effects of groundwater pumping by neighbors. To address the simultaneity of neighbors' pumping, we use the neighbors' permitted water allocation as an instrument for their pumping. We estimate that 2.5% of the total groundwater extracted each year in western Kansas is over-extraction due to the effects of spatial externalities. Individuals who own multiple wells internalize their own externality by trading off pumping at one well for pumping at another.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 64 (2012)
Issue (Month): 1 ()
Pages: 16-30

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Handle: RePEc:eee:jeeman:v:64:y:2012:i:1:p:16-30

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Groundwater management; Spatial externalities; Nonrenewable resources; Common property resource;

References

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  1. Gisser, Micha, 1983. "Groundwater: Focusing on the Real Issue," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(6), pages 1001-27, December.
  2. Oscar R. Burt, 1964. "Optimal Resource Use Over Time with an Application to Ground Water," Management Science, INFORMS, INFORMS, vol. 11(1), pages 80-93, September.
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  5. Santiago Rubio & BegoƱa Casino, 2003. "Strategic Behavior and Efficiency in the Common Property Extraction of Groundwater," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 26(1), pages 73-87, September.
  6. Lin, C.-Y. Cynthia, 2009. "Estimating strategic interactions in petroleum exploration," Energy Economics, Elsevier, Elsevier, vol. 31(4), pages 586-594, July.
  7. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers, Wisconsin Madison - Social Systems 9127, Wisconsin Madison - Social Systems.
  8. Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1738, Harvard - Institute of Economic Research.
  9. Eswaran, Mukesh & Lewis, Tracy R, 1984. "Appropriability and the Extraction of a Common Property Resource," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 51(204), pages 393-400, November.
  10. Elena G. Irwin, 2002. "Interacting agents, spatial externalities and the evolution of residential land use patterns," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 2(1), pages 31-54, January.
  11. Brozovic, Nicholas & Sunding, David L. & Zilberman, David, 2010. "On the spatial nature of the groundwater pumping externality," Resource and Energy Economics, Elsevier, Elsevier, vol. 32(2), pages 154-164, April.
  12. Janmaat, Johannus A., 2005. "Sharing clams: tragedy of an incomplete commons," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 49(1), pages 26-51, January.
  13. Burness, H. Stuart & Brill, Thomas C., 2001. "The role for policy in common pool groundwater use," Resource and Energy Economics, Elsevier, Elsevier, vol. 23(1), pages 19-40, January.
  14. Sanchirico, James N. & Wilen, James E., 2005. "Optimal spatial management of renewable resources: matching policy scope to ecosystem scale," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 50(1), pages 23-46, July.
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Cited by:
  1. Peterson, Jeffrey M. & Saak, Alexander E., 2013. "Spatial externalities in aquifers with varying thickness: Theory and numerical results for the Ogallala aquifer," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150553, Agricultural and Applied Economics Association.
  2. Pfeiffer, Lisa & Lin, Cynthia, 2013. "The Effects of Energy Prices on Groundwater Extraction in Agriculture in the High Plains Aquifer," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA, Agricultural and Applied Economics Association 161890, Agricultural and Applied Economics Association.
  3. Guilfoos, Todd & Pape, Andreas D. & Khanna, Neha & Salvage, Karen, 2013. "Groundwater management: The effect of water flows on welfare gains," Ecological Economics, Elsevier, Elsevier, vol. 95(C), pages 31-40.

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