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 employ an optimal control analytical model, which is then parameterized and simulated for Sheridan County, Kansas, which overlies the Ogallala aquifer. We contrast competitive and optimal allocations and account for endogenous and time-varying irrigation capital on water use and stock. In our anal- ysis, we account for the labor-savings from improved irrigation technologies, which is an often overlooked reduction in adoption costs. We find that in the absence of pol- icy intervention, the open access solution yields an early period with underinvestment in efficiency-improving irrigation technology relative to the socially efficient solution, which is followed by a period of overinvestment. This suggests a potential role for ir- rigation 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 go on to simulate various policy scenarios where irriga-tion technology subsidies implemented in isolation and in combination with water use restrictions, to explore whether simple implementation of these programs can capture significant portions of the potential welfare gain.