An Economic Model of Transboundary Water Agreements With Groundwater and Surface Water Interaction: Application to a US River Basin With a History of Conflict

Abstract This study examines the connection between groundwater and surface water in the design of transboundary compacts. A steady‐state hydro‐economic model is developed and applied to a river basin in the United States. Simulations demonstrate that when a water compact is designed to govern only surface water, the assigned allocations are nonbinding and lead to decreased river‐flow in the downstream region. When the compact is designed to govern surface water and groundwater usage combined, however, the assigned allocations are binding and changes in them can increase overall net benefits, with the extent dependent on flexibility in compact design.