Essays on Economics of Groundwater Resource Management

Citation

Zhao, Hao (2019) Essays on Economics of Groundwater Resource Management. Dissertation (Ph.D.), California Institute of Technology. doi:10.7907/WXTB-7828. https://resolver.caltech.edu/CaltechTHESIS:05312019-084004761

Abstract

This thesis examines groundwater management regimes in California and discusses how to implement an optimal aquifer management scheme.

Chapter 2 examines the effectiveness of adjudication, a legal settlement among groundwater pumpers, in managing groundwater basins in Southern California. As a form of self-governance, adjudication generally leads to higher water level in the adjudicated basins than the unregulated ones. However, its rigid rules impair dynamic efficiency. Compared with the competitive pumpers, pumpers in the adjudicated basins actually have a less counter-cyclical extraction pattern in response to surface water availability.

Chapter 3 examines how surface water trading intensifies groundwater depletion in California's Central Valley. A surface water market only mitigates the groundwater over-extraction problem when pumping costs are very high, while market failure arises when the pumping costs are low. I build an agricultural water use model to connect the efficacy of the surface water market with crop patterns response to surface water supply variation. The data suggest that the Central Valley is in a low pumping cost regime where the farmers pump groundwater to replace whatever surface water they sell. Therefore, the surface water trade is inefficient because it depletes groundwater resources and should be curtailed until the commons problem is addressed.

Chapter 4 studies optimal groundwater aquifer management. I solve the dynamic optimization problem for groundwater extraction by a social planner when when farmers are heterogeneous and the surface water supply is uncertain. To implement the optimal pumping plan, the farmers must be allocated pumping rights each period equal to the socially optimal extraction. An incentive compatibility issue arises if farmers have heterogeneous access to groundwater. Those who overlie the deepest part of the aquifer might delay regulation because they will get more water as others exit. A larger amount of farmers must be included in the decision set to resolve this political conflict.

Thesis Files