Interjurisdictional Spatial Externalities in Groundwater Management∗

When designing groundwater management policies, it is important to account for spatial externalities that result from the common pool nature of the resource. Spatial externalities may arise not only among individual groundwater users sharing the same aquifer, but also among groundwater water managers whose separate jurisdictions do not each cover an entire aquifer. In this paper, we develop a model of interjurisdictional spatial externalities in groundwater management. We find that groundwater managers each managing a subset of the plots of land that overlie an aquifer and each behaving non-cooperatively with respect to other groundwater managers will over-extract water relative to the socially optimal coordinated solution if there is spatial movement of water between patches that are managed by different groundwater managers. We apply our model to a detailed spatial data set to analyze and estimate interjurisdictional spatial externalities in groundwater management in California under the policy framework created by the 2014 Sustainable Groundwater Management Act (SGMA). Our results suggest that fragmented regulation may lead to inefficient pumping in the face of uninternalized externalities, and provide empirical evidence for the presence of interjurisdictional spatial externalities that should be accounted for in the optimal design of groundwater management in California.