Price Incentives for Conservation: Experimental Evidence from Groundwater Irrigation

Groundwater is a vital input to agricultural production worldwide, but a widespread lack of effective regulation leads to overconsumption and depletion. We evaluate a program of price incentives for voluntary groundwater conservation among smallholder farmers in Gujarat, India, where water (and the electricity used to pump it) is scarce and unregulated. To do so, we install meters and offer payments for reduced groundwater pumping in a randomized controlled trial. Price incentives work: The program reduced hours of irrigation by 24 percent. Most of the conservation is achieved by a price within a realistic policy range; doubling the price has little additional effect. Payment expenditures per unit energy conserved are near the cost of expanding electricity supply, suggesting that payments for groundwater conservation may be a cost-effective policy tool where pricing is politically infeasible.