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Optimal adaptation strategies to face shocks on groundwater resources

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  • de Frutos Cachorro, Julia
  • Erdlenbruch, Katrin
  • Tidball, Mabel

Abstract

We consider an exogenous and reversible shock to a groundwater resource, namely a decrease in the recharge rate of the aquifer. We compare optimal extraction paths and the social costs of optimal adaptation in two cases: under certainty, i.e. when the date of occurrence of the shock is known, and under uncertainty, when the date of occurrence of the shock is a random variable. We show that an increase in uncertainty leads to a decrease in precautionary behavior in the short run and to an increase in precautionary behavior in the long run. We apply our model to the particular case of the Western la Mancha aquifer in Spain. We show that, in this context, it is advantageous for the water agency to acquire information on the date of the shock, especially for high-intensity and intermediate-risk events.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 40 (2014)
Issue (Month): C ()
Pages: 134-153

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Handle: RePEc:eee:dyncon:v:40:y:2014:i:c:p:134-153

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Groundwater resource; Optimal behavior; Exogenous shock; Uncertainty;

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  1. Brozovic, Nicholas & Schlenker, Wolfram, 2011. "Optimal management of an ecosystem with an unknown threshold," Ecological Economics, Elsevier, vol. 70(4), pages 627-640, February.
  2. Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 991-1010, September.
  3. Zemel, Amos, 2012. "Precaution under mixed uncertainty: Implications for environmental management," Resource and Energy Economics, Elsevier, vol. 34(2), pages 188-197.
  4. Roseta-Palma, Catarina, 2002. "Groundwater Management When Water Quality Is Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 93-105, July.
  5. Tsur, Yacov & Zemel, Amos, 1996. "Accounting for global warming risks: Resource management under event uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1289-1305.
  6. Aart de Zeeuw & Amos Zemel, 2012. "Regime Shifts and Uncertainty in Pollution Control," CESifo Working Paper Series 3697, CESifo Group Munich.
  7. Tsur Yacov & Zemel Amos, 1995. "Uncertainty and Irreversibility in Groundwater Resource Management," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 149-161, September.
  8. Di Maria, Corrado & Smulders, Sjak & van der Werf, Edwin, 2012. "Absolute abundance and relative scarcity: Environmental policy with implementation lags," Ecological Economics, Elsevier, vol. 74(C), pages 104-119.
  9. Catarina Roseta-Palma, 2003. "Joint Quantity/Quality Management of Groundwater," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(1), pages 89-106, September.
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