Irrigation was introduced to provide more stability and profit to Great Plains agriculture and the High Plains aquifer is a primary source of irrigation water. Irrigation pumping began in the 1920's and by the 1980's had transformed 6.5 million ha of dryland crop production and rangeland into highly productive farmland (Supalla et al., 1982). The High Plains aquifer underlies 445 million ha in parts of Colorado,

Thompson, Christopher L., Raymond J. Supalla, Derrel L. Martin, and Brian P. McMullen, 2009. Evidence Supporting Cap and Trade as a Groundwater Policy Option for Reducing Irrigation Consumptive Use. Journal of the American Water Resources Association (JAWRA) 45(6):1508‐1518. Abstract:  In the American West water is becoming an increasingly scarce resource. Obligations to bordering states, endangered species protection, and long‐term resource sustainability objectives have created a need for most western states to reduce the consumption of irrigation water. In Nebraska specifically, the Nebraska Department of Natural Resources (NDNR) and local Natural Resource Districts (NRDs) are meeting a large part of this need by using a regulatory approach, commonly called groundwater allocation. The cost of allocation, which occurs in the form of reduced economic returns to irrigation, could be greatly reduced by using an integrated cap and trade approach. Much like environmental cap and trade programs which are used to reduce the cost of limiting environmental pollution, the trading of capped groundwater allocations can reduce the cost of limiting water use. In an analysis of a typical case in the Nebraska Republican Basin, we found that the impact of a water market to trade groundwater allocations depended on the size of the allocation and on the characteristics of the land and irrigation systems involved in the trade. Potential economic benefits from trade ranged from US$0 to US$120 per 1,000 cubic meters traded, from US$25 to US$250 per 1,000 cubic meters of reduction in consumptive use, and from US$16 to US$50 per hectare of irrigated land in the region. The highest benefits occurred at relatively high allocations, which capped withdrawals at 65‐75% of the expected unrestricted pumping level. These gains from trade would be split between buyers and sellers based on the negotiated selling price.

A method is developed to determine optimal irrigation strategies for a single season using crop production functions which incorporate physically based coefficients. The relationship of yield to evapotranspiration is used to develop the yield-irrigation function. The physical parameters used in the production function can be determined from field measurements or various types of computer simulation. Using this approach, the optimal irrigated area and depth of water to apply can be related to prices, costs, and physical parameters. This produces a more general solution than commonly used production functions that depend on limited experimental results. The optimal irrigation depth and irrigated area can be determined for either land or water limiting conditions. The analysis also allows consideration of different irrigated and dryland crops. Three examples are analyzed to illustrate the use of the technique and to develop some general guidelines.

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The resource management problem for the Middle Platte ecosystem is the insufficient water available to meet both instream ecological demands and out-of-stream economic needs. This problem of multiple interest groups competing for a limited resource is compounded by sharp disagreement in the scientific community over endangered species' needs for instream flows. In this study, game theory was used to address one dimension of this resource management problem. A sequential auction with repeated bidding was used to determine how much instream flow water each of three states -Colorado, Nebraska, and Wyoming -will provide and at what price. The results suggest that the use of auction mechanisms can improve the prospects for reaching a multi-state agreement on who will supply instream flow water, if the auction is structured to discourage misrepresentation of costs and if political compensation is allowed.