Optimizing Long-Term Irrigation of Areas above an Unconfined Aquifer: Quantity and Quality Considerations

Groundwater use is likely to be inefficient in the absence of regulation and there is therefore substantial interest in optimal groundwater withdrawals over time. Under an optimal withdrawal regime, agriculture above the aquifer and profits converge to steady-state levels. We combine, in one endogenous system, the economic and environmental aspects of optimal aquifer management with not only surface water, groundwater and wastewater for irrigation, but also desalinated groundwater. Empirical estimates of a steady-state solution in which the quantity and quality of the groundwater are fixed at optimal levels and the aggregate net present value of the farmer’s profits is maximized are reported for an agricultural area in Israel with heavy reliance on groundwater supply. Our analysis enables the calculation of a Pigovian tax levied on the farmers to internalize the planner’s solution.