Well Worth it: Well Capacity and the Cost of Aquifer Depletion for Irrigated Agriculture

Shahin Bahrami, Mani Rouhi Rad, Aaron Hrozencik, Gabriela Perez Quesada and Rodolfo Nayga

No 361200, 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO from Agricultural and Applied Economics Association

Abstract: Groundwater is a critical source of water supply for irrigated agriculture. Multiple studies have highlighted the importance of declining well capacities as a critical factor affecting groundwater demand in agriculture. These studies show that well capacity, the maximum instantaneous flow rate of pumping from an aquifer, is a better determinant of groundwater use than saturated thickness, which measures the height of an aquifer above the bedrock. While the effects of declining well capacities on irrigation demand are well known, the costs of declining well capacities are not well understood. In this paper, we estimate the benefits of groundwater access and the value of irrigation well capacity using a hedonic valuation approach applied to agricultural property markets in the Colorado portion of the High Plains Aquifer. Specifically, we spatially link agricultural land sale transactions with the hydrologic characteristics of the aquifer and irrigation wells. This novel dataset allows us to estimate land values as a function of well capacity, saturated thickness, depth to water, hydraulic conductivity , and specific yield. In addition, we control for a range of non-hydrological attributes of farmland that may affect land values, such as proximity to urban areas, soil quality, and the dollar value of the improvements. We find that having access to groundwater is associated with about a 119% higher land values. On the other hand, a 10-foot higher saturated thickness is associated with 2% higher land values. We also find that both saturated thickness and well capacity are statistically significant determinants of land values. Specifically, we show that a 100 gpm increase in well capacity is associated with a 2% increase in land values ($127 in 2022 USD). Our results have important implications for valuing groundwater as natural capital. We find that the exclusion of well capacity can underestimate the shadow value of groundwater by more than 10%.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Pages: 17
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea25:361200

DOI: 10.22004/ag.econ.361200

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