Abstract
Groundwater is a vital input to agricultural production worldwide, but a widespread lack of effective regulation leads to overconsumption and depletion, while water supplies are becoming scarcer and less reliable in many regions. We will evaluate a program of price incentives for voluntary groundwater conservation among smallholder farmers in Gujarat, India, where water (and the electricity used to pump it) is scarce and unregulated. To do so, we install meters and offer payments for reduced groundwater pumping in a randomized controlled trial. First, we use the price variation introduced by this program to estimate the price elasticity of groundwater demand, a key parameter required for efficient regulation by any means. Then, we evaluate conservation payments as a potentially useful policy tool in itself, measuring its treatment effects, spillovers, and cost-effectiveness. Pilot evidence confirms that conservation payments are feasible and suggests effects on water use could be large.