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Essays on the economic value of the High Plains aquifer

Federico Garcia Suarez, University of Nebraska - Lincoln

Abstract

The High Plains aquifer is the primary source of water for agriculture irrigation in this area of the United States. This region extends from southern South Dakota to northern Texas and most of it has a low precipitation regime that makes irrigation an important input. The aquifer is almost a non-renewable resource since recharge is quite low. The use of groundwater for irrigation has dropped the water table in some regions to levels where it is economically infeasible to continue irrigating. By 2050 the United Nations forecasts an increase of population to 9 billion. (UnitedNations (1995)). This implies that the agricultural sector will be challenged to produce more or at least not to reduce production. The potential reduction in aquifer level imposes a threat to crop production. This study looks into the value of groundwater for irrigation, the optimal management of the irrigated area and the option value of saving water for future irrigation. The first chapter estimates a production function and uses it to obtain the value of groundwater in agriculture. The results show that irrigation provides an extra revenue, on average, of $165 per acre. The second chapter uses a dynamic programming approach to incorporate inter-temporal production effects of irrigation. Results show an optimal water extraction path to 2050 that varies with location. We also find that optimal management of irrigation provides water savings to account for extreme weather conditions. In the third chapter a real options value approach is used to find the optimal adoption-abandonment of irrigation technology under price uncertainty. Results show that adoption-abandonment of irrigation decision depends on prices, yield differences between practices, and groundwater stock availability.^

Subject Area

Economics, Agricultural

Recommended Citation

Suarez, Federico Garcia, "Essays on the economic value of the High Plains aquifer" (2013). ETD collection for University of Nebraska - Lincoln. AAI3604717.
http://digitalcommons.unl.edu/dissertations/AAI3604717

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