Optimal Mechanisms for Heterogeneous Multi-cell Aquifers
AbstractStandard economic models of groundwater management impose restrictive assumptions regarding perfect transmissivity (i.e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, observability of individual extraction rates, and/or homogenous agents. In this article, we derive regulatory mechanisms for inducing the socially optimal extraction path in Markov perfect equilibrium for aquifers in which these assumptions do not hold. In spite of the complexity of the underlying system, we identify an interesting case in which a simple linear mechanism achieves the social optimum. To illustrate potential problems that can arise by erroneously imposing simplifying assumptions, we conduct a simulation based on data from the Indian state of Andhra Pradesh.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.28.
Date of creation: Mar 2011
Date of revision:
Common Property Resource; Differential Games; Groundwater Extraction; Imperfect Monitoring; Markov Perfect Equilibrium;
Other versions of this item:
- Stergios Athanassoglou & Glenn Sheriff & Tobias Siegfried & Woonghee Huh, 2012. "Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 52(2), pages 265-291, June.
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- D0 - Microeconomics - - General
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- 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. 150553, Agricultural and Applied Economics Association.
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