Unintended consequences of water rights reform in China: Evidence from city-level groundwater sustainability in the Yellow River Basin

Water rights reform (WRR) has been promoted as a market-based instrument to improve allocation efficiency, encourage the adoption of water-saving technologies, and support sustainable water management. While such reforms are expected to deliver positive outcomes, their unintended environmental impacts remain insufficiently understood. This study evaluates the effect of WRR on groundwater sustainability in the Yellow River Basin using a panel dataset of 101 prefecture-level cities from 2003 to 2022. A two-way fixed effects difference-in-differences (DID) model is employed to identify causal effects, and robustness is further assessed using synthetic-DID, spatial-DID, and multiple supplementary methods. The results show that WRR reduced groundwater availability by 11.7%, an adverse and unanticipated outcome driven by the diffusion of water-saving irrigation technologies that reduced infiltration and aquifer recharge. Mediation analysis indicates that improvements in grain water use efficiency and agricultural value-added water use efficiency are associated with additional declines in groundwater resources by 0.4% and 1.6%, respectively. Rainfall alleviates these negative effects, while heterogeneity analysis reveals that ecological costs are more pronounced in modernized irrigation zones and agriculturally dependent regions, and less severe in areas with active water rights trading. These findings demonstrate that WRR, despite achieving efficiency gains, generates unintended negative consequences for groundwater sustainability and highlight the importance of incorporating hydrological processes and regional heterogeneity into environmental policy evaluation.