Entering the policy debate: An economic evaluation of groundwater policy in flux

This is an age of transition in groundwater policy. The ownership and control of aquifers, changing groundwater quality, and the impact of groundwater on the environment command the attention of policy makers around the globe. Substantial pressure exists for change in the laws and regulations governing groundwater, which are critical to the management of this critical resource. The objective of this paper is to contribute to the practical policy debate from an economic perspective. This study begins by outlining the basic stages of change in groundwater policy and their economic relevance. A set of physical, economic, and institutional indicators are suggested that may help to understand various country issues. The indicators are used to describe some actual experiences in groundwater policy in the United States and Spain that are examined for insights into common policy questions. This study suggests that the public authority to initiate groundwater policy innovations often results from the physical ties between surface and groundwater. In contexts rich with spatial and temporal externalities the situation is more complex, but this increases the social benefits that result from successful reform. A credible threat of losing rights is often necessary to create enough incentives to firm existing rights. Reductions in overall use are better achieved through purchasing and retiring rights, rather than through compensation for nonuse. Finally, the policy issues important to groundwater are often more fundamental than pricing alone. These insights may help policy makers adapt to emerging groundwater management problems.