Dynamic Feedback between Surface and Groundwater Systems: Implications for Conjunctive Management

A key feature of hydrologically connected surface and groundwater stocks is the two-way exchange of water between the systems. Increasing water scarcity, particularly in arid environments, has spurred debate on how to coordinate management of the two resources. In this paper, I present a model that describes the dynamic feedback loop between surface and groundwater systems when economic agents withdraw water from both for use in production. I use the model to describe optimal water extraction from both stocks and to evaluate how a conjunctive management policy shifts welfare between surface and groundwater user groups. Finally, I explore the importance of accounting for two-way feedback between the two stocks, when it exists, in estimating the benefits to a conjunctive management system. I estimate that the returns to conjunctive management in a closed system are greater than 6.5 times that in a system with an open feedback loop between water stocks.