Climate Uncertainty and Optimal Groundwater Augmentation

Abstract

AbstractTwo approaches to augment irrigation water supply are managed aquifer recharge (MAR) and on‐farm reservoirs with tail‐water recovery (OFS‐TWR). We explore the joint use of MAR and OFS‐TWR to sustain groundwater and agricultural income with climate variability by farmer risk preference. We find that MAR use declines slightly with greater risk aversion and declines rapidly with MAR cost. The use of OFS‐TWR increases with risk aversion. The use of MAR increases income by a larger percentage for risk‐neutral than very risk‐averse producers. Across risk aversion degree, the use of MAR leads to a percentage increase in income that is double the percentage increase in the standard deviation of income (i.e., income risk). At a low cost of MAR, there is little difference in MAR use between a very risk‐averse and a risk‐neutral producer across scenarios of crop profit margin and the initial depth to water. Large differences in OFS‐TWR use between a very risk‐averse and a risk‐neutral producer occur when there are relatively high crop profit margin, low initial water depth, or a low discount rate.