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Groundwater use under incomplete information

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  • Saak, Alexander E.
  • Peterson, Jeffrey M.

Abstract

In this paper, we introduce a game theoretic model of groundwater extraction in a two-cell aquifer under incomplete information. A novel assumption is that individual users have incomplete knowledge of the speed of lateral flows in the aquifer: although a user is aware that his neighbor's water use has some influence on their future water stock, they are uncertain about the degree of this impact. We find that the lack of information may either increase or decrease the rate of water use and welfare. In a two-period framework, the relevant characteristic is the ratio of the periodic marginal benefits of water use. Depending on whether this ratio is convex or concave, the average speed with which the aquifer is depleted decreases or increases when users learn more about the local hydrologic properties of groundwater. We also show that the effect of better information on the welfare of the average producer may be negative even in the situations when, on average, groundwater is allocated more efficiently across irrigation seasons.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 54 (2007)
Issue (Month): 2 (September)
Pages: 214-228

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Handle: RePEc:eee:jeeman:v:54:y:2007:i:2:p:214-228

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Web page: http://www.elsevier.com/locate/inca/622870

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References

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  1. Sanchirico, James N. & Wilen, James E., 2005. "Optimal spatial management of renewable resources: matching policy scope to ecosystem scale," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 50(1), pages 23-46, July.
  2. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 18(5), pages 703-740, December.
  3. Provencher Bill & Burt Oscar, 1993. "The Externalities Associated with the Common Property Exploitation of Groundwater," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 24(2), pages 139-158, March.
  4. Jeffrey M. Peterson & Ya Ding, 2005. "Economic Adjustments to Groundwater Depletion in the High Plains: Do Water-Saving Irrigation Systems Save Water?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 87(1), pages 147-159.
  5. Eswaran, Mukesh & Lewis, Tracy R, 1984. "Appropriability and the Extraction of a Common Property Resource," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 51(204), pages 393-400, November.
  6. Harrington Jr. , Joseph E., 1995. "Experimentation and Learning in a Differentiated-Products Duopoly," Journal of Economic Theory, Elsevier, Elsevier, vol. 66(1), pages 275-288, June.
  7. Kim, C. S. & Moore, Michael R. & Hanchar, John J. & Nieswiadomy, Michael, 1989. "A dynamic model of adaptation to resource depletion: theory and an application to groundwater mining," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 17(1), pages 66-82, July.
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Citations

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Cited by:
  1. Saak, Alexander E., 2008. "Groundwater Use in Asymmetric Aquifer under Incomplete Information," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 6545, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Pfeiffer, Lisa & Lin, C.-Y. Cynthia, 2012. "Groundwater pumping and spatial externalities in agriculture," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 64(1), pages 16-30.
  3. Qiuqiong Huang & Jinxia Wang & Scott Rozelle & Stephen Polasky & Yang Liu, 2013. "The Effects of Well Management and the Nature of the Aquifer on Groundwater Resources," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 95(1), pages 94-116.
  4. Hubert Stahn & Agn├Ęs Tomini, 2011. "Rainwater Harvesting under Endogenous Capacity of Storage : a solution to aquifer preservation?," Working Papers, HAL halshs-00626334, HAL.
  5. Peterson, Jeffrey M. & Saak, Alexander E., 2013. "Spatial externalities in aquifers with varying thickness: Theory and numerical results for the Ogallala aquifer," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150553, Agricultural and Applied Economics Association.
  6. Guilfoos, Todd & Pape, Andreas D. & Khanna, Neha & Salvage, Karen, 2013. "Groundwater management: The effect of water flows on welfare gains," Ecological Economics, Elsevier, Elsevier, vol. 95(C), pages 31-40.
  7. Pamela Giselle Katic, 2010. "Spatial dynamics and optimal resource extraction," Centre for Water Economics, Environment and Policy Papers, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University 1002, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.

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