Impacts of Policy Design and Risk Management on Groundwater Conservation Program Effectiveness

Abstract Irrigated agriculture has led to aquifer depletion in many places, necessitating effective groundwater conservation policies to slow unsustainable water use. However, the success of conservation policies is contingent on complex interactions between agronomic production, aquifer response, and risk management tools, all of which shape agricultural water diversions. This study uses an agent‐based model to evaluate how uniform pumping restrictions and crop insurance, a popular risk management tool, jointly influence farmer decisions in the Sheridan‐6 Local Enhanced Management Area (SD‐6 LEMA) collaboratively regulated region of western Kansas. Calibrated against observed data under widespread crop insurance coverage and LEMA regulation, the model captures farmers' adaptive decision‐making shaped by prior‐year satisfaction. Scenario‐based analysis reveals that pumping restrictions reduce groundwater withdrawals by up to 19.9% during drought years and modestly promote crop diversification. Crop insurance indirectly supports diversification by stabilizing behavior following the 2012 drought and 2013 policy change, though the direct impact of crop insurance on groundwater diversions is limited (1.4% reduction). Behavioral differences—not direct financial incentives—drive divergence between insured and uninsured farmers: insured farmers maintain stable strategies, while uninsured farmers shift in response to environmental variability and peer influence. Stricter irrigation restrictions sustain aquifer levels but have limited additional effects on cropping patterns when crop insurance is present. During droughts, crop insurance buffers profit losses under strict water limits by nearly half. Overall, integrating groundwater conservation with crop insurance enhances aquifer sustainability and farm‐level economic resilience. Findings offer insights into designing coordinated water governance and agricultural policies amid growing climate uncertainty.