The Economics of Agricultural Groundwater Management Institutions: The Case of California

The sustainable management of groundwater resources for use in agriculture is a critical issue in California and globally. Many of the world's most productive agricultural basins depend on groundwater and have experienced declines in water table levels. The food consumers eat, the farmers who produce that food, and the local economies supporting that production are all affected by the availability of groundwater. Increasing competition for water from cities and environmental needs, as well as concerns about future climate variability and more frequent droughts, has caused policy-makers to look for ways to decrease the consumptive use of water. When designing groundwater management policies and institutions, it is important to consider any possible perverse consequences from the policy. In this paper, we discuss the economics of sustainable agricultural groundwater management institutions, including the possible perverse consequences of incentive-based agricultural groundwater conservation programs; the importance of dynamic management, conjunctive management, and spatial management; and property rights.