Optimal and Sustainable Groundwater Use: Evidence from Nebraska

Facundo Danza

No 355327, Agricultural Economics Society (AES) 98th Annual Conference, The University of Edinburgh, Edinburgh, UK, March 18-20, 2024 from Agricultural Economics Society (AES)

Abstract: The agricultural sector is the primary water consumer in the US. Groundwater is one of its main sources, with 65% of irrigated farmland relying on groundwater for their water supply. Groundwater use presents a common pool problem: if a farmer pumps groundwater, she decreases the aquifer’s water table and thus increases the cost of pumping for farmers in the same aquifer. Studying such a problem is challenging due to a lack of markets and data on groundwater use. In this paper, I leverage detailed farmer-level data on (ground)water use, crop choices, and crop yields to study the equilibrium implications of the current groundwater costs. I focus on the Ogallala Aquifer in Nebraska. In order to estimate the effect of water costs on water use and crop choices, I combine a crop-growth model with an economic model. I use the cropgrowth model to recover the precise relation between water use and crop yields. I use the economic model to estimate the marginal cost of water for farmers. I then quantify how farmers respond to water costs by switching which crop they plant or changing the water use per planted crop. I find that farmers are inelastic to water costs: a 10% increase in the water cost would decrease water use by 3%. Moreover, I find that farmers adapt to higher water costs by both reducing the water use per planted crop and fallowing the land. Lastly, I utilize my estimates to compute the optimal and sustainable tax on groundwater use.

Keywords: Crop Production/Industries; Sustainability (search for similar items in EconPapers)
Pages: 49
New Economics Papers: this item is included in nep-agr and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aes024:355327

DOI: 10.22004/ag.econ.355327

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