Inter-temporal decisions, optimal taxation and non-compliant behaviors in groundwater management

A sizable part of the water extracted is unauthorized. This phenomenon may contribute to exacerbate the problem of groundwater over-exploitation. To consider both issues, we study the interaction between the water agency and farmers through a leader-follower differential game in which both agents are perfect foresight. Since the farmers have to pay a tax on individual withdrawals imposed by the water agency to manage the groundwater, illegal behaviors may arise to save this cost. However, if discovered, the farmers are punished with an administrative sanction. The game is solved using feedback Stackelberg solution. Moreover, to enrich the model’s policy suggestions, we also consider an alternative context in which farmers can adopt a trigger strategy. Finally, we perform numerical simulations based on the western La Mancha (Spain) aquifer data to better understand both the analytical results and the effects of the sanction mechanism on non-compliant behaviors.