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Spatial Groundwater Management: A Dynamic Game Framework and Application to California

Author

Listed:
  • Louis Sears

    (Cornell University, Ithaca, NY 14850, USA)

  • David Lim

    (Cornell University, Ithaca, NY 14850, USA)

  • C.-Y. Cynthia Lin Lawell

    (Cornell University, Ithaca, NY 14850, USA)

Abstract

The design of policies and institutions to promote the sustainable management of groundwater resources for use in agriculture is both a long-term and short-term challenge in California and globally. When designing groundwater management policies, it is important to account for spatial externalities that may lead groundwater users to behave non-cooperatively. Spatial externalities arise because groundwater users face a common pool resource problem: because farmers are sharing the aquifer with other farmers, other farmers’ pumping affects their extraction cost and the amount of water they have available to pump. In this paper, we present a dynamic game framework for analyzing spatial groundwater management. In particular, we characterize the Markov perfect equilibrium resulting from non-cooperative behavior, and compare it with the socially optimal coordinated solution. In order to analyze the benefits from internalizing spatial externalities in California, we calibrate our dynamic game framework to California, and conduct a numerical analysis to calculate the deadweight loss arising from non-cooperative behavior. Results show that the inefficiencies arising from spatial externalities are driven by higher returns on crops, electricity input prices, whether the crop is an annual crop versus a perennial, the level of the groundwater stock, the climate of the region, and the adjustment costs of fallowing production. We find that the benefits from coordinated management in California are particularly high when crop prices are high.

Suggested Citation

  • Louis Sears & David Lim & C.-Y. Cynthia Lin Lawell, 2019. "Spatial Groundwater Management: A Dynamic Game Framework and Application to California," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 1-34, January.
    • Handle: RePEc:wsi:wepxxx:v:05:y:2019:i:01:n:s2382624x18500194
    DOI: 10.1142/S2382624X18500194
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    References listed on IDEAS

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    Cited by:

    1. Caleb M. Koch & Heinrich H. Nax, 2022. "Groundwater Usage and Strategic Complements: Part II (Revealed Preferences)," Games, MDPI, vol. 13(5), pages 1-19, October.
    2. 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.
    3. 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.
    4. Sears, Louis S. & Lawell, C.Y. Cynthia Lin & Torres, Gerald & Walter, M. Todd, 2022. "Moment-based Markov Equilibrium Estimation of High-Dimension Dynamic Games: An Application to Groundwater Management in California," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322187, Agricultural and Applied Economics Association.
    5. Sears, Louis S. & Lin Lawell, C.-Y. Cynthia & Walter, M. Todd, 2020. "Groundwater Under Open Access: A Structural Model of the Dynamic Common Pool Extraction Game," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304276, Agricultural and Applied Economics Association.
    6. Bertone Oehninger, Ernst & Lin Lawell, C.-Y. Cynthia, 2021. "Property rights and groundwater management in the High Plains Aquifer," Resource and Energy Economics, Elsevier, vol. 63(C).

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