PRELIMINARY VERSION - PLEASE DO NOT CITE
to the water degradation in the aquifer. Following the same approach used above, the conditions
for the maximum principle can be easily obtained.
We now describe a uniform land retirement strategy that offers a uniform rental rate (R)
for all the eligible farmers in the region. Under such a strategy, all the farmers with πijt ≤ R will
participate in the program. The uniform policy is commonly implemented because it is easier to
put into practice due to less information requirements. However, this policy may not be cost-
effective because it does not target farmers with higher benefit (reduction in water use) to cost
(rental payment) ratio. Given the expected profits of each farmer under the private optimality, we
can determine the uniform rental rate (R) required to achieve a given number of acres retired ( L )
in the region. The effectiveness of the uniform policy for water resource management in terms of
the cost and water-use reduction is an empirical question. In the next section, we develop an
empirical model to analyze the implications of alternative policies for the management of water
resources in the ESPA.
3. Empirical Application and Data
The developed model is empirically applied to the ESPA in southern Idaho. We calibrate
our theoretical model to the hydrological and soil conditions in the ESPA. The Eastern Snake
River Plain extends as a two hundred mile long arc, about 60 miles in width, across southeast
Idaho. Composed of layered basalt lava flows and some sediment, it covers an area of
approximately 10,800 square mile across 16 counties (Cosgrove et al., 1999; Johnson and
Cosgrove, 1999). The aquifer is semi-confined of about 4,000 feet thick at the center of the
Snake River plain. It annually supplies about 40,000 acre feet of water for drinking and two
million acre feet of water for irrigation and industry (INEEL, 2002). The ESPA is the only
source of drinking water for most of the people in southeast Idaho. The ESPA is drained by the