The Impact of Discount Rate and Price on Intertemporal Groundwater Models in Southwest Kansas

Abstract

Agriculture plays a vital role in the growth and development of the High Plains Region of the United States. With the development and adoption of irrigation technology, this region was transformed into one of the most agriculturally productive regions in the world [1]. The primary source of irrigation in this region is the Ogallala Aquifer. Currently, water from the aquifer is being used at a much faster rate than natural recharge can occur, resulting in a high rate of depletion from this finite resource. Depletion of scarce water resources will have a significant economic impact on the long-term sustainability of the region. The objective of this study is to evaluate the impact alternative prices and discount rates have on groundwater policy recommendations. Deterministic models of groundwater withdrawals were developed and used in order to analyze and evaluate the impact of high, average, and low crop prices in a status quo scenario as well as a policy scenario reducing irrigated acreage allocation. Furthermore, this study analyzes the effects and associated consequences of alternative discount rates on net and total revenue. As indicated by results of this study, alternative prices, costs, and discount rates utilized in a model have an effect on policy effectiveness.