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Responding to a Groundwater Crisis: The Effects of Self-Imposed Economic Incentives

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  • Steven M. Smith
  • Krister Andersson
  • Kelsey C. Cody
  • Michael Cox
  • Darren Ficklin

Abstract

Many globally important groundwater aquifers are under considerable stress as withdrawals, predominantly for irrigation, outpace recharge. Meanwhile, groundwater policy to address the common-pool resource losses remains in its nascent stage. This study analyzes a recent and unique bottom-up effort to self-impose a groundwater pumping fee in San Luis Valley, Colorado. Utilizing a difference-in-difference econometric framework, our results bring new and direct empirical evidence to the debate on the use of economic incentives in groundwater policy. We find that the price intervention has been effective, leading to a 33% reduction in groundwater use, predominantly through reduced irrigation intensity. We also find, to a more limited extent, movement away from water-thirsty crops and reduced overall irrigated acreage. Given that financial incentives can produce substantial conservation within a groundwater commons in duress, price-based policies warrant further consideration as irrigators address diminishing and variable water supplies.

Suggested Citation

  • Steven M. Smith & Krister Andersson & Kelsey C. Cody & Michael Cox & Darren Ficklin, 2017. "Responding to a Groundwater Crisis: The Effects of Self-Imposed Economic Incentives," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(4), pages 985-1023.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/692610
    DOI: 10.1086/692610
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    Cited by:

    1. R. Aaron Hrozencik & Dale T. Manning & Jordan F. Suter & Christopher Goemans, 2022. "Impacts of Block‐Rate Energy Pricing on Groundwater Demand in Irrigated Agriculture," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 404-427, January.
    2. Vallury, Sechindra & Abbott, Joshua K. & Shin, Hoon C. & Anderies, John M., 2020. "Sustaining Coupled Irrigation Infrastructures: Multiple Instruments for Multiple Dilemmas," Ecological Economics, Elsevier, vol. 178(C).
    3. Louis Sears & David Lim & C.-Y. Cynthia Lin Lawell, 2018. "The Economics of Agricultural Groundwater Management Institutions: The Case of California," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 1-21, July.
    4. 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.
    5. Drysdale, Krystal M. & Hendricks, Nathan P., 2018. "Adaptation to an irrigation water restriction imposed through local governance," Journal of Environmental Economics and Management, Elsevier, vol. 91(C), pages 150-165.
    6. Smith, Steven M., 2018. "Economic incentives and conservation: Crowding-in social norms in a groundwater commons," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 147-174.
    7. Godwin Kwabla Ekpe & Anna A. Klis, 2023. "Spillover Effects in Irrigated Agriculture from the Groundwater Commons," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(3), pages 469-507, November.
    8. Paloch Suchato & Taro Mieno & Karina Schoengold & Timothy Foster, 2022. "The potential for moral hazard behavior in irrigation decisions under crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 53(2), pages 257-273, March.
    9. Andrew B. Rosenberg, 2020. "Targeting of Water Rights Retirement Programs: Evidence from Kansas," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1425-1447, October.
    10. Perez-Quesada, Gabriela & Hendricks, Nathan P., 2021. "Lessons from local governance and collective action efforts to manage irrigation withdrawals in Kansas," Agricultural Water Management, Elsevier, vol. 247(C).
    11. Rouhi Rad, Mani & Brozović, Nicholas & Foster, Timothy & Mieno, Taro, 2020. "Effects of instantaneous groundwater availability on irrigated agriculture and implications for aquifer management," Resource and Energy Economics, Elsevier, vol. 59(C).
    12. R. Aaron Hrozencik & Jordan F. Suter & Paul J. Ferraro & Nathan Hendricks, 2024. "Social comparisons and groundwater use: Evidence from Colorado and Kansas," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(2), pages 946-966, March.
    13. Louis Sears & Joseph Caparelli & Clouse Lee & Devon Pan & Gillian Strandberg & Linh Vuu & C. -Y. Cynthia Lin Lawell, 2018. "Jevons’ Paradox and Efficient Irrigation Technology," Sustainability, MDPI, vol. 10(5), pages 1-12, May.
    14. Bruno, Ellen M. & Jessoe, Katrina K. & Hanemann, Michael, 2023. "The Dynamic Impacts of Pricing Groundwater," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2mx8q1td, Department of Agricultural & Resource Economics, UC Berkeley.
    15. Xiangwen Kong & Chengyan Yue & Eric Watkins & Mike Barnes & Yufeng Lai, 2023. "Investigating the Effectiveness of Irrigation Restriction Length on Water Use Behavior," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 37(1), pages 251-268, January.
    16. Bruno, Ellen M. & Jessoe, Katrina, 2021. "Missing markets: Evidence on agricultural groundwater demand from volumetric pricing," Journal of Public Economics, Elsevier, vol. 196(C).
    17. Ellen M. Bruno & Richard J. Sexton, 2020. "The Gains from Agricultural Groundwater Trade and the Potential for Market Power: Theory and Application," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 884-910, May.
    18. Dietrich Earnhart & Nathan P. Hendricks, 2023. "Adapting to water restrictions: Intensive versus extensive adaptation over time differentiated by water right seniority," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(5), pages 1458-1490, October.
    19. Eric C. Edwards & Todd Guilfoos, 2021. "The Economics of Groundwater Governance Institutions across the Globe," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1571-1594, December.
    20. de Bonviller, Simon & Wheeler, Sarah Ann & Zuo, Alec, 2020. "The dynamics of groundwater markets: Price leadership and groundwater demand elasticity in the Murrumbidgee, Australia," Agricultural Water Management, Elsevier, vol. 239(C).
    21. Bruno, Ellen Marie & Hagerty, Nick, 2023. "Anticipatory Effects of Regulation in Open Access," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt58n467v5, Department of Agricultural & Resource Economics, UC Berkeley.
    22. Jordan F. Suter & Sam Collie & Kent D. Messer & Joshua M. Duke & Holly A. Michael, 2019. "Common Pool Resource Management at the Extensive and Intensive Margins: Experimental Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(4), pages 973-993, August.
    23. Andrea Pronti & Julio Berbel, 2020. "Analysis of the impact of a volumetric tariff for irrigation in Northern Italy through the “Inverse DiD†approach," SEEDS Working Papers 1320, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jul 2020.
    24. Ellen M. Bruno & Nick Hagerty & Arthur R. Wardle, 2022. "The Political Economy of Groundwater Management: Descriptive Evidence from California," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 343-365, National Bureau of Economic Research, Inc.

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