THE IMPACT OF DISCOUNT RATE AND PRICE ON INTERTEMPORAL GROUNDWATER MODELS IN SOUTHWEST KANSAS
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Agriculture plays a vital role in the growth and development of the High Plains Region of the United States. Historically, early settlers in the semi-arid region were plagued by crop failures largely due to drought; however, affordable irrigation technology aided in the transformation of the High Plains into one of the most agriculturally productive regions in the world (Peterson et al., 2003). The primary source of irrigation in this region is the Ogallala Aquifer. Spanning approximately 174,000 square miles, the aquifer lies under parts of Texas, New Mexico, Oklahoma, Colorado, Kansas, Nebraska, Wyoming, and South Dakota (Alley et al., 1999). 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 the resulting policy recommendations. These assumptions play a significant role in determining what measures of groundwater policy should be implemented. Considering the declining levels of saturated thickness seen in the results of this study, the analysis of alternative discount rates and the associated policy recommendations is merited.