Groundwater pumping from a common property aquifer leads to pumping cost externalities which imply a divergence between competitive and socially optimal rates of groundwater pumping. Gisser and Sanchez (1980) show in a specific context that this qualitative distinction is quantitatively negligible. However, this result seems to defy the common consensus that in many aquifers, depletion will occur prematurely. Given these observations, serious questions arise concerning the role and scope of water management policy. We further explore this issue under alternative hydrologic/ economic hypotheses and note scenarios under which divergence of competitive and socially optimal rates of water pumping is significant. We find that divergence increases with demand growth, declining well yields, and low social discount rates. The role and scope of policy are then inferred.
IntroductionA well-known and much discussed result in theoretical analyses of groundwater pumping concerns the role of common property effects wherein numerous groundwater users in an aquifer in essence ignore the effects of their own pumping on groundwater levels and hence future pumping costs. These qualitative results notwithstanding, Gisser and Sanchez [1980] raised the question as to whether this qualitative distinction led to any meaningful quantitative difference in terms of actual aquifer depletion in the context of the hydrology of a specific aquifer. Their conclusion, based on an analysis of the Pecos Basin in New Mexico, was that •ere is no substantive quantitative difference between socially optimal (planning) rules for pumping water, wherein common property effects are considered, and so-called "competitive" rates, where common property effects are ignored.The upshot of all this is obvious: If there is no quantitative difference between optimal and competitive rates of water pumping, then policy considerations can be limited to those which ensure that the market operates in a competitive fashion and concerns relative to rectifying common property effects are obviated. This suggests that there is little or no role for water policy in the form of pumping limitations, a conclusion which seems to contradict apparent common consensus opinion that many groundwater aquifers face depletion in the foreseeable future. At issue, of course, is whether such depletion is "premature" in any sense. To the extent that it is, then these observations are clearly dichotomous. These concerns have led to a number of investigations which, at least in part, consider the robustness of the Gisser-Sanchez result. Both Feinerrnan and Knapp [1983] and Nieswiadomy [ !985] consider a wide range of parameter values in sensitivity analyses. Kim et al. [1989] analyze groundwater demand disaggregated by crop. Zimmerman [!990] shows that finite hydraulic conductivity can result in