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Voluntary, incentive-based policies are often offered to resource users to address the overexploitation of common property resources. Spillovers from these policies have important implications for policy effectiveness. Considering different externalities that can affect producers’ irrigation decisions, we investigate whether permanently retiring groundwater rights impacts groundwater use among active neighboring groundwater users. We find that enrollment in the retirement program causes neighboring wells to initially pump less groundwater on average. However, water use reductions are only temporary, due to relative increases in stock levels over time. The results imply that policies that retire water rights may conserve more water than anticipated in the short term, but, over time, higher resource stocks could lead to policy leakage. We also present evidence that the decrease in groundwater use is driven by the shared resource stock. Our results provide empirical evidence for the importance of spatial spillovers related to common property resource management.