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Working Paper
Are We Consuming Too Much Groundwater?
We study the optimality of human groundwater extraction from many of the world’s 3,400 aquifers, where institutional or market failures may produce non-optimal extraction decisions. We use remote sensing and economic data to estimate a dynamic model of water extraction for each aquifer, recover the discount factor that rationalizes observed groundwater extraction, and compare it against Ramsey and market benchmarks. Three- to four-fifths of aquifers are extracted more rapidly than is optimal, decreasing aquifer present value by several percent, and creating trillions of dollars in present ...