Well Capacity and the Gains from Coordination in a Spatially Explicit Aquifer

In this paper, we develop a spatially explicit hydro-economic model of groundwater use to address two research questions related to groundwater management. First, we highlight the theoretical and empirical relationship between changes in an aquifer’s saturated thickness at a given location and the net returns to irrigated agriculture. Second, we illustrate how this relationship influences the relative gains to dynamic behavior and the coordination of groundwater pumping. This latter question helps to provide feedback on the extent to which groundwater use that accounts for dynamic linkages can support higher net returns, even when it does not involve the full coordination of all users. We find that the gains from individual dynamic optimization and coordinated groundwater management critically depend on the sensitivity of crop yields to the level of saturated thickness. When lower levels of saturated thickness correspond to substantial yield reductions, even individual users stand to benefit from optimal management relative to behaving myopically.