Global Study of 3,400 Aquifers Finds Groundwater Pumping Often Economically Unsustainable Over Time

A new economics study takes a global look at a question that has long worried hydrologists and policymakers: are people pumping groundwater at rates that make economic sense over time?

The researchers examine extraction from thousands of aquifers—about 3,400 worldwide—where the usual safeguards that would align today’s pumping with tomorrow’s scarcity often break down. In many places, groundwater rights are poorly defined, users do not pay the full cost of depletion, and regulation is limited or shaped by local politics. Those institutional and market frictions can lead to decisions that are privately rational in the moment but socially costly in the long run.

To measure how far actual behavior may be from an economically efficient path, the authors combine remote-sensing information with economic data to build a dynamic model of groundwater extraction for each aquifer. Rather than imposing a single assumption about how much decision-makers value the future, the study “backs out” the discount factor that would make the observed extraction path look optimal from the perspective of a representative user. The inferred discounting is then compared with standard reference points: a Ramsey-style benchmark reflecting socially optimal intertemporal trade-offs, and a market benchmark reflecting how private actors typically discount future payoffs.

The results suggest widespread over-extraction. Across the global set of aquifers, roughly three- to four-fifths are being pumped faster than the economically optimal rate, according to the model. This speed-up is not merely a technical inefficiency: it reduces the present value of aquifers by several percentage points. When aggregated across systems that support cities and agriculture on every continent, those losses translate into present-value welfare costs measured in the trillions of dollars.

The study also evaluates the welfare consequences of common policy approaches. Rules that effectively promise users a constant quantity of water indefinitely—whether through subsidies or seniority-based “prior appropriation” rights—can amplify inefficiencies, creating even larger welfare costs in the model. So can policies that treat future extraction as essentially irrelevant, equivalent to fully discounting future benefits and costs; such rules encourage taking water now rather than preserving stock for later.

Notably, the authors find that “sustainability” defined as maintaining current aquifer fill levels forever is not necessarily the best economic target. A path that keeps today’s groundwater stock constant into perpetuity can generate substantially lower welfare than the model’s optimal extraction path, largely because many aquifers are already depleted below efficient levels. In that situation, simply freezing the current (already inefficient) stock locks in past overuse rather than correcting it.

The paper credits numerous academic audiences and research assistants for feedback, and notes financial support from the Giannini Foundation. The authors also emphasize that their conclusions represent their own views and not necessarily those of the Federal Reserve Bank of Dallas, the Federal Reserve System, or the National Bureau of Economic Research.

Why it matters

Groundwater is a critical buffer for droughts and a backbone of irrigated agriculture, yet much of it is managed through fragmented rules that can reward short-term pumping. If most aquifers are being depleted faster than is economically efficient, the cost is not just environmental—it represents large, avoidable losses in long-run welfare. The findings also signal that policy design matters: well-intentioned guarantees or simplistic “always keep today’s level” goals may worsen outcomes, so future debates will likely focus on reforms that better align incentives with scarcity over time.