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Recent negotiations between surface water and groundwater users in Idaho highlight a potential
mechanism to resolve costly conflict that has arisen in many areas of the western U.S. where surface and
groundwater resources are hydraulically connected. This article studies this type of agreement by
developing a simple, dynamic model of cooperative bargaining between surface and groundwater users.
The model reflects the potential gains to both types of water users from bargaining over a sustained
reduction in groundwater pumping to increase surface water flows. In a non-cooperative se!ng, surface
water users choose the groundwater pumping reduction to maximize their net production rents, but
doing so is costly, which creates an incentive for surface water users to negotiate with groundwater
users. With the theoretical model, we demonstrate that the Nash bargaining path of curtailments is
lower than that in the non-cooperative outcome, but that it may be larger or smaller than the &rst-best
outcome. The di'erence between the bargaining and &rst-best outcomes depends on the efficiency of
groundwater irrigation and the relative bargaining power of surface water and groundwater users. In a
numerical simulation, we show that when surface water users possess greater bargaining influence, the
bargaining solution involves larger curtailments than is socially optimal and an improvement in irrigation
efficiency drives the bargaining solution closer to the non-cooperative outcome. Conversely, when
groundwater users possess greater bargaining influence, curtailments are lower than the socially optimal
level and an improvement in efficiency drives the bargaining solution closer to the &rstbest. We study
the effect of sanitary and phytosanitary (SPS) measures on Chinese agricultural exports and the role of
