Publication Date: November 2019
We test the game-theoretic foundations of common-pool resources using an individual-level dataset of groundwater usage that accounts for 3% of US irrigated agriculture. Using necessary and suﬀicient revealed preference tests for dynamic games, we ﬁnd: (i) a rejection of the standard game-theoretic arguments based on strategic substitutes, and instead (ii) support for models building on reciprocity-like behavior and strategic complements. By estimating strategic interactions directly, we ﬁnd that reciprocity-like interactions drive behavior more than market and climate trends. Taken together, we take a step toward developing more realistic models to understand groundwater usage, and related issues pertaining to tragedy of the commons and commons governance.
Keywords: Common-pool resources, US agriculture, Groundwater, Dynamic game theory, Revealed preferences, Panel data, Identification