Optimal Groundwater Extraction under the Linear Response and Plateau Technology

This paper studies the optimal management of groundwater resources when agronomic and hydrologic constraints bind the use of groundwater for irrigation. The binding constraints lead to a perfectly inelastic demand for groundwater. In the case of symmetric agents the social and private rates of groundwater extraction coincide with one another and commonality is completely innocuous; in the case of asymmetric agents the rate of extraction remains the same in the social and private setting, yet irrigation is abandoned by the same agent at different times. The model offers one way to rationalize the empirically found peculiarities of sticky water demand and Gisser-Sanchez Effect which defy conventional theory. The situations described in the model also challenge conventional corrective measures for management of groundwater as a common property resource. Policy recommendations are provided.