UC Riverside

We design a field experiment to study the behavior of farmers under alternative electricity subsidies for extracting groundwater in Mexico. The paper proposes a model for the extraction of groundwater over multiple periods, and then examines the effectiveness of three policy interventions: elimination, reduction, and decoupling. Results from a field experiment conducted in the city of León, Guanajuato, México, show that all the three proposed policy interventions sustain positive effects on the pumping level: elimination has the largest effect, whereas reduction results in only a marginal effect on the rate of groundwater extraction. Decoupling proves to be a viable policy, as it produces an effect similar to elimination while reducing possibly undesirable political implications. We then compare these results with a laboratory experiment conducted with US undergraduate students, and report significant differences between the laboratory and field studies.