PRELIMINARY VERSION - PLEASE DO NOT CITE
2004). Since curtailment of some groundwater pumping is considered as the part of solution, the
federal Conservation Reserve Enhancement Program (CREP) has been proposed to make
curtailment voluntary. This program would pay annual rental payments to eligible farmers in
order to take up to 100,000 acres of land out of production.
Several studies have examined the efficient allocation of groundwater (Brown and
Deacon, 1972; Allen and Gisser, 1984; Feinerman and Knapp, 1983; Roseta-Palma, 2003; Kim
et al., 1989; Rubio and Casino, 2003). These studies suggest various policies to achieve the
desired socially optimal extraction. Policy recommendations include taxes, quotas, subsidies,
tradable permits, and standards. Although it is theoretically easy to determine optimal
taxes/subsidies, various problems are associated with implementations such as monitoring,
heterogeneity in farmer characteristics, high transaction costs, and varying tax/subsidy rates over
time to reflect increasing scarcity (Hellegers and Ierland, 2003; Roseta-Palma, 2002, 2003).
Thus, there is a need to develop alternative policies and programs that are easy to implement and
can avoid many of the problems associated with the market-based policies considered above. An
example of such a policy that has been recommended for reducing water use from the agriculture
is the voluntary land retirement program.
There has been relatively little attention given to the effectiveness and implications of
voluntary land retirement programs as a policy option to manage groundwater. It is important to
understand the extent to which land retirement programs are cost-effective in achieving the water
allocation goals. Although several studies examined the cost-effective targeting of the
Conservation Reserve Program (Babcock et al., 1996, 1997; Ribaudo, 1986, 1989) and the
Conservation Reserve Enhancement Program (Khanna et al., 2004; Yang et al., 2005; Yang and
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