Optimal adaptation strategies to face shocks on groundwater resources
AbstractWe 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 InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 40 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jedc
Groundwater resource; Optimal behavior; Exogenous shock; Uncertainty;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
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