Externalities and Simultaneity in Surface Water-Groundwater Systems: Challenges for Water Rights Institutions

When surface water and groundwater resources are hydraulically connected, groundwater pumping may reduce surface water flows. In recognition of hydraulic connectivity between surface and groundwater resources, many states in the western United States have begun to develop systems of conjunctive administration in which property rights for surface water and groundwater are jointly managed. Implementing conjunctive administration requires an understanding of when and where surface and groundwater resources are connected. This article analyzes how decisions about water use and changes in irrigation technology influence connectivity across space and time, generating a challenge for policy instrument design. I develop and estimate an econometric model that reflects the simultaneity in surface and groundwater levels that arises due to the two-way flow of water in a hydraulically connected system. The model also traces the effect of changes in irrigation technology on consumptive water use and return flows, and the consequences for changes in water availability. Estimation results using a panel dataset for the Eastern Snake River Plain of Idaho from 1960 to 2011 indicate that connectivity between surface and groundwater resources has decreased over time due to declining groundwater levels. Declining groundwater levels are attributable not only to groundwater pumping, but also to a widespread shift from flood to sprinkler irrigation. This transition in irrigation technology has conserved surface water but depleted groundwater by reducing aquifer recharge. As connectivity declines, reducing groundwater pumping to augment surface water flows, a common approach to conjunctive administration, yields diminishing marginal benefits.