Abatement subsidies for groundwater conservation

Abstract

Public programs that provide financial compensation for voluntary behavior have been widely used to incentivize the conservation of common property resources such as groundwater. Numerous existing groundwater conservation programs provide financial incentives to agricultural producers to permanently retire their groundwater use rights, ceasing irrigation from the associated well. This research estimates the net social benefits of a retirement policy and compares them to net benefits realized under a policy that provides subsidies for incremental reductions in groundwater use. Policies aimed at incremental groundwater use reductions have historically been ignored due, in part, to technological limitations for monitoring water use. Technological advancements make policies based on incremental changes in behavior feasible. We develop a theoretical model to compare water use behavior and welfare under the alternative policies. Then, we use a novel integrated assessment model to empirically illustrate the dynamic economic tradeoffs of the policies for a study area in Kansas. Our analysis shows that resource rents actually decrease under the retirement program relative to a baseline with no conservation policy. Further, subsidizing incremental reductions in groundwater use can dramatically increase the net social benefits of groundwater conservation relative to the retirement policy, but the choice of the subsidy policy parameters plays a critical role in determining its impact and cost to policymakers.