The Impact of Irrigation Capital Subsidies on Common-Pool Groundwater Use and Depletion: Results for Western Kansas

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 develop and simulate an optimal control analytical model parameterized for Sheridan County, Kansas, overlying the Ogallala aquifer. We contrast competitive and optimal allocations and account for endogenous and time-varying irrigation capital on water use and groundwater stock. In our analysis, we account for the labor-savings from improved irrigation technologies. We find that in the absence of policy intervention, the competitive solution yields an early period with underinvestment in efficiency-improving irrigation technology relative to the socially efficient solution, followed by a period of overinvestment. This suggests a potential role for irrigation 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 simulate a policy scenario where an irrigation technology subsidy is implemented to explore whether such a program can capture significant portions of the potential welfare gain.