PRELIMINARY VERSION - PLEASE DO NOT CITE
Isik, 2004) for non-point source pollution control, there is currently no study examining the
implications of land retirement programs for achieving water quantity goals.
The purpose of this paper is to develop a model of water resource management that
incorporates heterogeneity in farmer characteristics to analyze the socially optimal management
of groundwater allocation with a land retirement program. First, we formulate an optimal control
problem that determines the socially optimal water use and land allocations among alternative
crops and compare those to the privately optimal solutions. Second, we introduce an optimal
control problem of a least-cost land retirement program that achieves a given level of
groundwater stock to examine the implications of land retirement programs and their cost-
effectiveness in achieving the optimal water allocations. The developed model is empirically
applied to the ESPA.
This study contributes to the existing literature on the management of groundwater
resources as well as the design and implementation of alternative land retirement policies. It
incorporates heterogeneity in resource users in terms of soil characteristics, productivity, costs of
production, water use, land availability, and crops produced in modeling groundwater
extractions. Most existing studies of groundwater management (e.g., Roseta-Palma, 2002, 2003;
Qiuqiong and Scott, 2004) fail to capture this heterogeneity among farmers. We also provide
implications of land retirement programs for the water resource management by developing an
optimal control model. This is the first investigation of land retirement programs for achieving
water quantity goals. The framework developed in this paper can be applied to other regions and
water conflicts to analyze the implications of various public policies for finding solutions to
water management problems. The results from this paper have important implications for the
design and implementations of alternative policies for the management of scarce water resources.