The economic benefits and costs involved in an informal institutional arrangement of groundwater resource was analysed against control farm situation (non sharing farmers) in the present study. The sharing of well water among siblings was considered as an informal institution. Accordingly, a sample of thirty farmers sharing well water using snow ball sampling technique and a sample of seventeen farmers using simple random sampling were selected from central dry zone of Karnataka. In this study transaction costs and benefits of sharing water in irrigation well among siblings are estimated. The marginal productivity of groundwater irrigation due to the institution of sharing well water is estimated using linear regression with intercept dummy variable. The sustainable extraction path of groundwater is estimated using optimal control theory. The results indicated the absence of transaction cost in collective action, since sharing (a form of collective action which involves the cost of bringing siblings together providing information regarding importance of sharing water and the cost of convincing regarding sharing well water and the corresponding sustainable crop pattern, instead of drilling new well, which may result in reduced water in original well(s)) was among the siblings. Farmers who were sharing well water, experienced lower rate of failure of wells (23 per cent) when compared with farmers who were not sharing well water (for whom failure rate of wells was 46 per cent); had higher proportion of functioning wells (77 per cent) when compared with those not sharing (54 per cent). Similarly they experienced longer age of wells of 12.32 years, instead of 8.68 years; reduced negative externality (Rs. 1293 per well against Rs. 6692 per well), reduced cost of irrigation water per acre inch (Rs. 358 per acre inch against Rs. 599 per acre inch). Farmers who were sharing well water also realised higher net returns per rupee of functioning well (Rs.2,79,795 as against Rs.2,40,102) and net returns per rupee of irrigation water (Rs.10.83 against Rs. 7.23). The life of borewell could also enhance by 45 years instead of 8 years, by maintaining depth of wells.