Management of Water Resources in Adversity: The Role of Social Norms

We develop a framework that quantifies the effect of social norms on the efficient functioning of institutions and thereby their impact on effectiveness of reforms for sustaining common pool water resources under conditions of scarcity. We derive theoretical solutions and provide numerical simulations that provide evidence for performance of a group of farmers that use a common pool resource (reservoir, or aquifer) under norms and no norms, with reference to the existing institutional setting considered in the theoretical model. The theoretical results suggest that under no trade institution and norm adherence water users will always use less water then under no norms, and with possible inter-group trade norm-adhering water users would replace excess extraction with increased trade rates. Simulation results for the no-trade case suggest that with higher marginal utility values from adherence, the resource is sustained for significantly longer periods.