What Lies Beneath? Aquifer Heterogeneity and the Economics of Collective Action

Abstract: There is growing recognition that institutions formed through local collective action can mitigate common-pool losses. Rigorous quantitative analysis of how this is accomplished and how results depend critically on natural system characteristics is missing in the literature. I fill this gap by exploring how the physical properties of an aquifer affect the land values of pumpers in Kansas after the formation of local groundwater management districts. I use an economic-hydrologic model to predict how aquifer characteristics create heterogeneity in the benefits of management. Expected land value increases motivate collective action to reduce groundwater over extraction. I test predictions that users overlying portions of the aquifer that are held more in common (greater hydraulic conductivity) and those that receive less groundwater recharge see greater benefits from management. Using spatial hydrologic data, land values are shown to change with the implementation of management in a manner consistent with the model. Relative to other treated counties, landowners in a county with hydraulic conductivity one standard deviation higher see increased land values of about 6-8% after management is implemented. Further, landowners in a county with one standard deviation lower recharge see increases in land values under management of about 12%. This is the first study to incorporate groundwater system characteristics to explain the drivers of local mitigation efforts. The results present a generalizable example of how local or targeted solutions based on attributes of the physical system can be successful. Accordingly, local management regimes will benefit from making rules aligned with natural system characteristics.