The Impact of Irrigation Capital Subsidies on Common-pool Groundwater Use and Depletion: Results for Western Kansas
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We examine the effects of irrigation technology subsidies using a model of inter-
temporal common pool groundwater use with substitutable technology and declining
yields from groundwater stocks, where pumping cost and stock externalities arise from
the common property problem. We employ an optimal control analytical model, which
is then parameterized and simulated for Sheridan County, Kansas, which overlies the
Ogallala aquifer. We contrast competitive and optimal allocations and account for
endogenous and time-varying irrigation capital on water use and stock. In our anal-
ysis, we account for the labor-savings from improved irrigation technologies, which is
an often overlooked reduction in adoption costs. We find that in the absence of pol-
icy intervention, the open access solution yields an early period with underinvestment
in efficiency-improving irrigation technology relative to the socially efficient solution,
which is followed by a period of overinvestment. This suggests a potential role for ir-
rigation capital subsidies to improve welfare over certain ranges of the state variables.
In contrast to previous work, we find evidence that significant returns may be achieved
from policy intervention. We go on to simulate various policy scenarios where irriga-tion technology subsidies implemented in isolation and in combination with water use
restrictions, to explore whether simple implementation of these programs can capture
significant portions of the potential welfare gain.