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Abstract
Recent negotiations between surface water and groundwater users in Idaho highlight a potential
mechanism to resolve costly conflict that has arisen in many areas of the western U.S. where
surface and groundwater resources are hydraulically connected. This article studies this type of
agreement by developing a simple, dynamic model of cooperative bargaining between surface
and groundwater users. The model reflects the potential gains to both types of water users from
bargaining over a sustained reduction in groundwater pumping to increase surface water flows.
In a non-cooperative setting, surface water users choose the groundwater pumping reduction to
maximize their net production rents, but doing so is costly, which creates an incentive for surface
water users to negotiate with groundwater users. With the theoretical model, we demonstrate that
the Nash bargaining path of curtailments is lower than that in the non-cooperative outcome, but
that it may be larger or smaller than the first-best outcome. The difference between the
bargaining and first-best outcomes depends on the efficiency of groundwater irrigation and the
relative bargaining power of surface water and groundwater users. In a numerical simulation, we
show that when surface water users possess greater bargaining influence, the bargaining solution
involves larger curtailments than is socially optimal and an improvement in irrigation efficiency
drives the bargaining solution closer to the non-cooperative outcome. Conversely, when
groundwater users possess greater bargaining influence, curtailments are lower than the socially
optimal level and an improvement in efficiency drives the bargaining solution closer to the firstbest.