The development of agricultural irrigation systems has generated significant increases in
food production and farm income. However, unplanned and unconstrained groundwater
use could also cause serious consequences. To extend the economic life of groundwater,
water conservation issues have become the main focus for the policy makers. Taking
Ogallala aquifer in U.S. Southern Great Plains as an example, this paper analyzes whether
current and potential groundwater conservation policies provide profit-driven farmers
with incentives to save water. We adopt a theoretical approach to analyze farmer's optimal
response when facing following policy alternatives, including (1) irrigation technology
subsidy, (2) increased water cost, (3) unit subsidies for water saving, and (4) subsidies
on water-conservative crop. Our findings suggest that the effects of water conservation
policies vary by region. Specifically, the switching to higher efficiency technology should
occur in a preventative stage for the water saving to occur. Similarly, an increase in water
cost promotes water saving only when water resource is relatively abundant. In regions
where groundwater already poses a constraint, the unit subsidy for actual water saved and
price subsidy for water-conservative crops are more effective in achieving the water
conservation goal.