The Economic Cost of Groundwater Depletion in the High Plains Aquifer
Gabriela Pérez-Quesada, Nathan Hendricks, David R. Steward
Abstract
Depletion of groundwater stocks reduces both the flow of economic value and production of goods from this resource. One challenge in estimating the economic value of the stock of groundwater is that feedback effects from irrigation behavior affect resource conditions, which creates an endogeneity concern. This study estimates how changes in groundwater stocks affect the returns to agricultural land in the High Plains aquifer. We avoid bias from feedback effects by exploiting hydrologic variation in predevelopment saturated thickness. Simulation results reveal that the average annual present value of returns to land are expected to decrease in the High Plains region by $126.7 million in 2050 and by $266.0 million in 2100. When the initial saturated thickness is less than 70 feet, most of the economic impact (67%) of a decrease in the stock of groundwater occurs through an adjustment in irrigated acreage while 33% occurs through reduced irrigated rental rates.