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Modeling and evaluating marginal pumping fees in groundwater commons: do varying scarcity levels matter?

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Abstract

Price-based irrigation water-conservation policies are often designed as fixed per unit fees. In groundwater commons, however, this approach presupposes that irrigators assign the same value to each unit of water withdrawn, irrespective of the scarcity levels they individually face. This ignores spatial interdependencies in groundwater commons. In this paper, I examine the effect this possible tax structure misspecification has in measuring the performance of such Pigouvian taxes. I model the price of irrigation water as a non-constant marginal cost function dependent on the constant per unit fee and a variable cost-metric measure of scarcity, namely depth-to-water. Using a difference-in-difference econometric framework with irrigation data from San Luis Valley, results show that irrigators’ response to the constant marginal fee significantly depends on the scarcity levels individual irrigators face. More importantly, the results suggest that models that overlook the spatial element of scarcity would overestimate irrigators’ response to such pumping fee—which can misguide policy decisions.

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Fig. 1

Source: USGS Circular 1441

Fig. 2

Source: Adapted from Pfeiffer and Lin (2012)

Fig. 3

Source: Rio Grande Basin Implementation Plan, January 2022

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Data availability

Data may be made available upon reasonable request as it is publicly available from the Colorado’s Decision Support Systems (CDSS).

Notes

  1. See, for example, Theis (1938), Negri (1989), Provencher and Burt (1993), and Wang and Segarra (2011) for discussions on externalities in groundwater commons.

  2. It is worth noting that the index for individual irrigator is dropped for simplicity since irrigators’ optimization problem is identical.

  3. The terms farmer, irrigator and producer will be used interchangeably in this paper.

  4. The subscript f is used to explicitly indicate that the total allocatable fixed land includes total land fallowed for the growing season, which is not modeled in Moore and Negri (1992) and Moore et al. (1994).

  5. This assumption applies to the agricultural production in the San Luis Valley in Colorado, the study region of this paper. In the San Luis Valley, irrigators generally grow a specific crop on a parcel of land for a growing season. In other words, cultivated parcels of land are in effect crop-specific parcels; there is generally no mixed cropping on a given parcel in a given farming season. We can, therefore, argue that inputs are exclusively assigned to crop-specific cultivation activities and this in turn ensures that we are able to attribute each crop’s output to their unique input assignment.

  6. The relationship is clearer by recognizing that from the total derivative of B(s, b), we have \(\frac{\hbox{d}B(\cdot )}{\hbox{d}b} = \frac{\partial B(\cdot )}{\partial s} \cdot \frac{\hbox{d}s}{\hbox{d}b} + \frac{\partial B(\cdot )}{\partial b}\).

  7. A seventh sub-district was also formed, known as the Trinchera Groundwater Management Subdistrict, which is managed under the Trinchera Water Conservancy District (TWCD). The data for this study covers only RGWCD and not the TWCD.

  8. Available online: https://www.colorado.gov/pacific/cdss/division-3-rio-grande.

  9. The well decreed flow rate is the maximum allowable flow rate at which water can be pumped from a well.

  10. The binary indicator, D is renamed \(Tax\_Treated\) in the results tables to be more informative.

  11. These results are not presented in the paper but can be produced upon request.

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  1. Department of Economics, Northern Illinois University, DeKalb, IL, USA

    Godwin Kwabla Ekpe

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Ekpe, G.K. Modeling and evaluating marginal pumping fees in groundwater commons: do varying scarcity levels matter?. Environ Econ Policy Stud (2023). https://doi.org/10.1007/s10018-023-00386-w

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