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Abstract Farm size is a signicant determinant of both resource users are identical. This, along with the assump-
groundwater-irrigated farm acreage and groundwater-irriga- tion of instantaneous inter-seasonal transmissivity, sim-
tion-application rates per unit land area. This paper analyzes plies the analysis because there exists a representative
the patterns of groundwater exploitation when resource users user. However, this approach does not take into account
in the area overlying a common aquifer are heterogeneous. In the spatial distribution of users, and the dependence of
the presence of user heterogeneity, the common resource individual groundwater stocks on the history of past
problem consists of inefcient dynamic and spatial allocation extractions (Brozovic et al 2003; Koundouri 2004).
of groundwater because it impacts income distribution not Recently, some authors have taken into account the spatial
only across periods but also across farmers. Under competitive variability in groundwater use, either by relaxing the
allocation, smaller farmers pump groundwater faster if farmers assumption of instantaneous lateral ows (e.g., Brozovic
have a constant marginal periodic utility of income. However, et al. 2010) or by introducing spatial heterogeneity in the
it is possible that larger farmers pump faster if the Arrow-Pratt marginal value of resource use (e.g., Gaudet et al. 2001;
coefcient of relative risk-aversion is sufciently decreasing in Xabadia et al. 2004).
income. A greater farm-size inequality may either moderate or This article addresses another source of heterogeneity,
amplify income inequality among farmers. Its effect on that of variation in the size of the land area from which
welfare depends on the curvature properties of the agricultural each user can access the resource. This is an important
output function and the farmer utility of income. Also, it is issue because irrigated agriculture, one of the major
shown that a at-rate quota policy that limits the quantity of consumers of groundwater, is comprised of farms of
groundwater extraction per unit land area may have unintend- widely varying sizes (Schaible 2004; Hoppe et al. 2010).
ed consequences for the income distribution among farmers. Knapp and Vaux (1982), Feinerman (1988), (Foster and
Rosenzweig 2008), and Sekhri (2011) are among the few
Keywords Agriculture . Conceptual models . studies addressing variation in farm size or in pumping
Groundwater management volume.
It is well known that, to the extent that groundwater is
a common property resource, private decisions lead to
inefcient allocation. This result holds unless the aquifer
Introduction is relatively large in comparison to total groundwater use,
users can cooperate, or hydraulic conductivities are so
Theoretical models of groundwater extraction typically small that the resource is effectively private (Feinerman
assume that the resource is non-exclusive or that the and Knapp 1983). However, it is not clear whether
heterogeneity in farm size alleviates or exacerbates the
so-called tragedy of the commons (Hardin 1968). To the
Received: 27 June 2011 / Accepted: 29 March 2012
Published online: 17 May 2012 extent such effects are present, there are potentially
important policy implications, because redistributive pol-
* Springer-Verlag 2012 icies will then interact with policies to correct the common
property externalities: policies targeting one of these
A. E. Saak ())
domains may have unintended impacts in the other.
Markets, Trade, and Institutions Division, To understand the presence and nature of any such
International Food Policy Research Institute, interactions, the following questions are posed in this
2033 K Street, NW, Washington, DC, 20006-1002, USA article: What are the determinants of the relationship
e-mail: asaak@cgiar.org between farm size and groundwater use intensity? How
Tel.: +1-202-8624543
Fax: +1-202-4674439 does the distribution of farm sizes in the area inuence the
efciency of groundwater allocation? What are the
J. M. Peterson distributional impacts of farmland ownership structure
Department of Agricultural Economics,
Kansas State University, and water management policies? To analyze these ques-
216 Waters Hall, Manhattan, KS 66506-4011, USA tions a two-period model is developed where land above
e-mail: jpeters@agecon.ksu.edu an aquifer, all of which can be irrigated but is of
Model Aquifer
The total stock of groundwater stored in the aquifer in the
For simplicity, the model focuses on the stock, cost, and beginning of period 1 is x1=Ah1, where h1 is the height of the
access inequality externalities. It considers the decisions water table in period 1, and A is the size of the area measured
of water application per acre taking the distribution of in acres (1 acre = 0.4047 ha). Let L = {1,,A} denote the set
irrigated acres across farmers as exogenous. With slight of acres. The hydraulic heads of the water table under each
modications, the model can be extended to include acre are the same in the beginning of each period, hi,t = hj,t = ht
decisions about the share of farm acreage allocated to i, j L and t = 1,2. Let ui,t denote the quantity of groundwater
irrigated crops. Farmers are identical except for the applied in period t on acre i. By the quasi-bathtub assumption,
distribution of land ownership, and irrigation technology the per acre quantity of groundwater withdrawn in each period
is constant returns to scale. All prots are derived from cannot exceed the per acre stock or ht
agricultural outputs using groundwater for irrigation on a ui;t ht for all i 2 L and t 1; 2: 1
xed land area, and farmers hold exclusive pumping rights
P
on their land. The individual groundwater stocks are Let u1 A1 A i1 ui;1 denote the average pumping in
private during each irrigation season because there is no period 1. Since there is no recharge, the stock of
intra-seasonal well interference. However, the groundwa- groundwater in the aquifer in period 2 is x2 = x1 Au1,
ter is an inter-seasonal common property resource based and the level of the water table is
on the groundwater hydrology over a longer time interval.
The following assumptions are standard (e.g., Negri h2 h1 u1 : 2
1989):
which are implied by concavity of g. which implies that usi;1 h1 =2 8i 2 L. This is equivalent
Let v denote the periodic utility of farm income, to the assertion that, in the absence of a pumping cost
0 00
v > 0; v 0. Each farmer maximizes the sum of utilities externality and inequality of income across farmers, the
of the whole-farm revenue in each period: efcient solution distributes the available water equally
X X across the two periods on each farm.
p k max v g ui;t ; ht subject to 1 and 2: 5
fui;t gi2L
k
t1;2 i2Lk It is convenient to differentiate between the case when
farmers per period marginal utility of income is (1)
constant (i.e., utility is linear), and (2) decreasing (i.e.,
For simplicity, there is no discounting of future income. utility is concave). In the former case, from the social
planners point of view, a non-uniform distribution of
acreage across farmers has no effect on either the optimal
allocation of water either spatially or temporally. Howev-
Social planner er, as demonstrated in the next section, such differences
may still arise in competitive equilibrium. In the latter
Before turning to the analysis of the competitive allocation
case, as is demonstrated in part 2 of Proposition 1, the
by non-cooperating users, the efcient allocation n isorst social planner faces a trade-off between dynamic and
characterized. The social planner chooses usi;t to distributional sources of inefciencies.
maximize producer welfare conditional on the land From a policy perspective, an important insight of the
ownership distribution: analysis to follow is that, in the presence of farmer
heterogeneity, competitive allocations go beyond the
X Xn X
W max us
s
v g ui;t ; ht
s
6 tragedy of the commons, and affect income inequality as
i;t
t1;2 k1 i2Lk well. The welfare difference between the optimal and
subject to 1 and 2: competitive allocations may be particularly large, when,
from the societal point of view, the income distribution
matters. This happens when the equilibrium distribution of
The following result shows that the efcient allocation of pumping rates across heterogeneous farmers amplies the
groundwater compensates for income inequality caused by income inequality caused by size inequality. However, the
the inequality in farm sizes. The common resource may competitive allocation may also moderate the inherent
serve as a vehicle to decrease income inequality by inequality in income distribution caused by the inequality
redistributing income from larger farmers to smaller farmers. in land ownership, or even change its sign, whereas total
This effect is absent if either farm sizes are identical, or incomes over two periods earned by smaller farmers
farmers periodic utility functions are linear in income. Note exceed that of larger ones.
that optimal groundwater consumption in the nal period
exhausts the remaining stock on each farm, and hence, must
be identical on all acres, usi;2 usj;2 h2 8i; j 2 L, because Linear utility
the income utility and water benet functions are strictly
increasing. And so, the focus is solely on period 1 pumping. This section considers the case of linear utility functions,
All proofs that are not in the text are in the Appendix.
v 0. The competitive equilibrium is rst characterized,
00
0.75
Income (US$)
1.132 1350
1250
1.13
1150
1050
1.128
950
1.126 850
750 Total profit of a small farm
1.124 650
0 160 320 480 640 800 960 0 160 320 480 640 800 960
Farm size difference (acres) Farm size difference (acres)
c) d)
Fig. 1 Inequality in farm sizes, pumping rates, and income. a Per acre pumping rates. b Groundwater stock in period 2. c Average income
per acre. d Income for small and large farms (1 acre = 0.4047 ha = 4,047 m2)
Thus, the comparison of interest can be expressed as the P guuu u; h1 =guu u; h1 denote the index of concav-
! !
majorization A m B . A related notion of Schur-concave ity of the marginal output function of a farmer with
and Schur-convex functions technology g (u,h1) in period 1. If g (u,h1) were a utility
! will also be needed. A real-
of income function, then R would be interpreted as the
valued function y A is called Schur-concave if
! ! ! Arrow-Pratt coefcient of absolute risk aversion, and P
! m! would be the coefcient of absolute prudence.
A B implies y A y B , and y A is Schur-
! As g represents technology and not preferences in the
convex, if y A is Schur-concave. Schur-concavity might model here, these indexes are employed simply as
be more intuitively called Schur-monotonicity be- measures of the curvature of the physical relation between
cause it simply requires function y to always decrease output and water. In this non-stochastic framework, they
in response to a perturbation that induces more are indicators of the strength of the motive to smooth
dissimilarity in its arguments. The Lorenz function water extraction over time (i.e., the diminishing marginal
itself is an example of a Schur-concave function. The productivity of water). Adding uncertainty will not change
analysis to follow will appeal to the following the qualitative nature of the results. There is an empirical
important property of Schur-concave functions. Sup- literature on the relationship between farmers risk
! P ! preferences and their dynamic use of groundwater (e.g.,
n
pose that y A k1 zAk . Then y A is Schur- Antle (1983, 1987) and Koundouri et al. 2006) as well as
concave if and only if z is concave. on the effects of risk preferences on farmers reaction to
water quota policies (e.g., Groom et al. 2006).
Measuring concavity
The analysis that follows will also depend on the Inequality of farm sizes and groundwater stock
curvature properties (specically the degree of concavity) With the aforementioned denitions, the relationship
of the agricultural production function, g. Even though between inequality and the residual water stock in period
there is no uncertainty in this model, it is convenient to 2 can now be analyzed.
derive its results using well-known measures of curva-
ture from the literature on decision-making under Proposition 3. Suppose that farmers utility is linear in
uncertainty. Let R guu u; h1 =gu u; h1 denote the income. Then under more unequal distribution of farm
! !
index of concavity of agricultural output function, and sizes, A m B , the groundwater stock in period 2
The income of farmer k under the quota policy is Conclusions and policy implications
p k q Ak fgq; h1 gq; h1 qg; if q < h1 =2; and 18 This article has analyzed the economic inefciencies that
arise when farmers controlling operations of varying sizes
withdraw irrigation water from a common aquifer. Farm-
p k q Ak fgminq; gu1 ak f h1 u1 q; h1 ; h1 size inequality was shown to affect the degree of
inefciency because small farmers are more strongly
g h1 u1 q; h1 u1 qg; if q h1 =2:
inuenced by common property externalities than large
19 farmers, who have an incentive to internalize inter-well
costs within their operations. This insight alone has the
From Eq. (18) it follows that all farmers lose (gain) policy implication that the gains from groundwater
from a more restrictive quota, if the initial quota is management are likely to be greater in regions populated
sufciently small and the marginal benet of a higher by small farms such as in developing nations.
stock is small (large) relative to the marginal The overall effect of an increase in inequality on social
benet of water consumption: @pk q=@q Ak fgu q; h1 welfare was shown to be ambiguous and dependent on the
gu q; h1 q gh q; h1 qg 0 for all k = 1,,n. agricultural production function as well as on the
!
u1 B
Appendix
The rst inequality follows because the sum of compositions
Proof of Proposition 1 of two concave functions (here minak h1 ; ak g1
u ak f :; h1 ),
First, note that in period 2, the planner optimally exhausts is Schur-concave in a1,,an. To show this, it must be
the remaining stock on each farm because g and v are demonstrated that ag1u af is concave in a. Differentiating
strictly increasing. This implies that Eq. (1) binds for twice yields
t 2i:e:; usi;2 h2 8i 2 L, so that Eq. (6) can be written
Xn X @ 2 agu1 af f
W s max fusi;1 g v gusi;t ; ht vAk gh2 ; h2 : 2Ru Pu 0;
k1 i2L k @a2 Ruguu u; h1
! !
gh2 A ; h2 A g
Proof of Proposition 4
To show parts 1 and 2, we need two facts. Xn !
Fact 1. (1) p k ak Aak gminh1 ; uak is concave k1
Bk fggu1 bk f h2 A ; h1 ; h1
in ak when 3RP. ! !
(2) pk ak juak <h1 is convex in ak when 3R P, where gh2 A ; h2 A g
! Xn !
uak g1
u ak f h2 A ; h1 Bk fgminh1 ;gu1 bk f h2 A ; h1 ; h1
k1
Proof of Fact 1. To verify, differentiate twice
with respect to ak=a: ! !
gh2 A ; h2 A g
Xn !
Bk fg minh1 ; gu1 bk f h2 B ; h1 ; h1
@p k a @agua; h1 af 2 k1
A Agu; h1 ; and
@a ua<h1 @a guu u; h1 ! ! !
gh2 B ; h2 B g W c B :
21
The rst inequality follows because function
!
@ p k a
2
@ 2 agua; h1 WA is Schur-convex by Fact 1(2). The equality follows
A
@a 2
ua<h1 @a2 by condition 2(b) in the statement of Proposition 4. The
af 2 second inequality follows by condition 2(c) in the
A 3Ru Pu 0:
Ruguu u; h1 proposition statement and Fact 2.
22
depending on whether 3R P. This proves Fact 1(2). Proof of Proposition 5
To show Fact 1(1), note that ak gminh1 ; uak Suppose that us1 u1 . Then, by Eqs. (20) and (14) in the
minak gh1 ; h1 ; ak guak ; h1 by monotonicity of g. text,
Hence, ak gminh1 ; uak is concave in ai when 3R P
P Pn
as a composition of concave functions. us1 1=A Pnk1 minAk h1 ; v1 0
1 Pl1 al v Al h1 u1
s
Fact 2. @W c =@h2 > 0 < 1=A Pk1 minAk h1 ; v1 l1 al v Al h1 u1
n 1 n 0
Proof of Fact 2. @W c =@h2 inherits the sign of 1=A nk1 minAk h1 ; v1 0
1 ak v Ak h1 u1 u1
@fgg1 0
u af h2 ; h1 ; h1 gh2 ; h2 g=@h2 af h2 =guu u; h1
f h2 > 0, where the inequality follows by concavity of g.
The inequalities follow by concavity of v. And so, a
Keeping everything else equal, as the extent of dynamic
contradiction was obtained.
inefciency of the competitive allocation increases, Part 1. Let i 2 Lk . First, consider ui;1 Ak < h1. By
welfare falls. Eq. (13), differentiation yields
Part 1. By Eq. (12),
! P ! @ui;1 =@Ak v0 Ak h2 =Ak v00 Ak ui;1 1 RAk ui;1
W c A nk1 Ak fg minh1 ; gu1 a k f h2 A ; h1 ; h1
! ! RAk h2 0
gh A ; h2 A g
Pn 2 !
k1 Bk fgminh1 ; gu1 bk f h2 A ; h1 ; h1
! ! The inequality follows because, by Eq. (13), ui;1 h1 u1,
gh A ; h2 A g and so 1 RAk ui;1 RAk h1 u1 1 > 0. If ui;1
Pn 2 !
k1 Bk fg minh1 ; gu1 bk f h2 B ; h1 ; h1 h1 then uj;1 h1 for j 2 Ll ; k < l
! ! ! Part 2. Proof is analogous.
gh2 B ; h2 B g W c B :
!
The rst inequality follows because function WA is
Schur-concave as the sum of concave functions by
condition 1(a) in the statement of Proposition 4 and Fact Proof of Proposition 6
1(1). The second inequality follows by condition 1(b) in Part 1. Note that this is trivially true when the quota
the proposition statement and Fact 2. is binding in period 2, q0 < h1 =2, because then ui;1 q,