Price Incentives for Resource Conservation: Experimental Evidence from Groundwater Irrigation in India

Managing groundwater resources is a critical agricultural issue, especially in areas without access to irrigation. In many regions, farmers do not pay to use groundwater nor for the electricity required for extraction.  This lack of financial incentives to efficiently use groundwater may lead to overuse, misallocation, and inequitable distribution among farmers. One policy solution is to pay farmers for conservation, a strategy known as payments for environmental services (PES). PES has been deployed to incentivize voluntary resource conservation in other contexts; however, there are few randomized evaluations to show the impacts of PES programs. Do farmers reduce their groundwater pumping in response to PES, and what size payment sufficiently incentivizes more sustainable and efficient use of this critical natural resource?

This pilot project supported the digitization of Groundwater Prospects Maps—administrative geological and hydrological data prepared by India’s National Remote Sensing Center—to inform the design of a subsequent randomized evaluation. Researchers installed tamper-proof water meters on the pumps of smallholder farmers who predominantly grow cotton in the water-scarce Saurashtra region of Gujarat, India. The resulting randomized controlled trial examined how different payment levels affect groundwater consumption and agricultural productivity. To read more about the findings, view the working paper or full evaluation summary. This project was also featured in a webinar led by ATAI—view the webinar recording