Groundwater Usage and Strategic Complements: Part I (Instrumental Variables)

Abstract

We test whether the decisions in a common-pool resource game are better modeled game-theoretically as strategic substitutes or complements using an individual-level dataset of groundwater usage that accounts for 3% of US irrigated agriculture. Based on a regression framework with instrumental variables, we find support for strategic complements, suggesting that reciprocity– and/or race-to-depletion–like dynamics are key to understanding groundwater usage.

Keywords

• common-pool resources
• US agriculture
• groundwater
• dynamic game theory
• panel data
• identification