Analysis: Dynamics of Agricultural Groundwater Extraction

Agricultural shallow groundwater extraction can result in desiccation of neighbouring nature reserves and degradation of groundwater quality in the Netherlands, whereas both externalities are often not considered when agricultural groundwater extraction patterns are being determined. A model is developed to study socially optimal agricultural shallow groundwater extraction patterns. It becomes clear that the current price of groundwater is inefficient and provides fewer incentives for the adoption of modern irrigation technology than does a system that considers the cost of desiccation and groundwater contamination in the price of groundwater. The study shows that including the impact of groundwater extraction on groundwater quality into a resource management model is particularly significant if the recharge of groundwater is large compared with stock size.