The Role of Learning in Adaptation to Technology: The Case of Groundwater Extraction

Learning may play an important role in adopting new technology. While the role of learning in the decision to adopt has been widely investigated in the literature, to the best of our knowledge its role in knowing how to best use technology and the speed of learning has not been studied extensively. An example of this situation is when farmers adopt groundwater extraction technology. In this case, they need to learn the exact cost and benefit of extracting water in is relation to how they use it in practice. By comparing the extraction behavior of farmers who own new wells with farmers who own old wells, this paper explores the role of experience in shaping farmers’ decisions. Three identification strategies are used in this study to test the hypothesis that owners with less experience (owners of new wells) with groundwater technology are able to extract more water than experienced owners. The first strategy employs panel data. The results of this model show that groundwater extraction rises as the growth rate in the number of new wells increases. The second strategy uses the exogenous variation in precipitation shocks in a double-difference approach. Employing census data at the well level, this study shows that 6–13% more water is extracted from new wells than from older wells, and that the difference in extraction increases in areas that experience negative precipitation shocks. The third strategy uses the nearest-neighbor matching method, which shows that new wells extract 11% more groundwater per year compared to old wells, indicating that old wells are more efficient in maintaining their inter-temporal extraction. These findings have important implications for discussions of regulating a common pool resource. In the literature regarding the common pool problem, firms are often considered entities with complete information about their true abatement costs. An implication of findings of this paper is that quantity instruments for regulating groundwater extraction fail to guarantee productive efficiency when farmers face uncertainty about their marginal abatement cost. The results of this study show that it takes a few years for farmers to adapt to new technologies. According to this finding, a recommendation to policy makers, therefore, is that they must consider this time lag in learning how to use new technologies when proposing policies to mitigate the effects of climate change.