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Optimal Mechanisms for Heterogeneous Multi-cell Aquifers

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  • Stergios Athanassoglou

    (Fondazione Eni Enrico Mattei and Euro-Mediterranean Center on Climate Change)

  • Glenn Sheriff

    (National Center for Environmental Economics U.S. Environmental Protection Agency)

  • Tobias Siegfried

    (Water Center of the Earth Institute, Columbia University)

  • Woonghee Tim Huh

    (Sauder School of Business, University of British Columbia)

Abstract

Standard 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 Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.28.

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Date of creation: Mar 2011
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Handle: RePEc:fem:femwpa:2011.28

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Related research

Keywords: Common Property Resource; Differential Games; Groundwater Extraction; Imperfect Monitoring; Markov Perfect Equilibrium;

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References

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  1. Fisher, Anthony C. & Rubio, Santiago J., 1997. "Adjusting to Climate Change: Implications of Increased Variability and Asymmetric Adjustment Costs for Investment in Water Reserves," Journal of Environmental Economics and Management, Elsevier, vol. 34(3), pages 207-227, November.
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  3. Larry Karp, 2005. "Nonpoint Source Pollution Taxes and Excessive Tax Burden," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 229-251, 06.
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  6. Shah, Tushaar & Scott, C. & Kishore, A. & Sharma, A., 2003. "Energy-irrigation nexus in South Asia: Improving groundwater conservation and power sector viability," IWMI Research Reports H033885, International Water Management Institute.
  7. Catarina Roseta-Palma & Anastasios Xepapadeas, 2004. "Robust Control in Water Management," Journal of Risk and Uncertainty, Springer, vol. 29(1), pages 21-34, 07.
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  9. Shiferaw, Bekele & Reddy, V. Ratna & Wani, Suhas P., 2008. "Watershed externalities, shifting cropping patterns and groundwater depletion in Indian semi-arid villages: The effect of alternative water pricing policies," Ecological Economics, Elsevier, vol. 67(2), pages 327-340, September.
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  11. World Bank, 2001. "India : Power Supply to Agriculture, Volume 1. Summary Report," World Bank Other Operational Studies 15288, The World Bank.
  12. Eswaran, Mukesh & Lewis, Tracy R, 1984. "Appropriability and the Extraction of a Common Property Resource," Economica, London School of Economics and Political Science, vol. 51(204), pages 393-400, November.
  13. Athanassoglou, Stergios, 2010. "Dynamic nonpoint-source pollution control policy: Ambient transfers and uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(12), pages 2494-2509, December.
  14. Santiago Rubio & BegoƱa Casino, 2003. "Strategic Behavior and Efficiency in the Common Property Extraction of Groundwater," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(1), pages 73-87, September.
  15. Brozovic, Nicholas & Sunding, David L. & Zilberman, David, 2006. "On the spatial nature of the groundwater pumping externality," 2006 Annual meeting, July 23-26, Long Beach, CA 21035, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882, September.
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Cited by:
  1. Guilfoos, Todd & Pape, Andreas D. & Khanna, Neha & Salvage, Karen, 2013. "Groundwater management: The effect of water flows on welfare gains," Ecological Economics, Elsevier, vol. 95(C), pages 31-40.
  2. Kiran Krishnamurthy, Chandra, 2012. "Optimal Management of Groundwater under Uncertainty: A Unified Approach," CERE Working Papers 2012:19, CERE - the Center for Environmental and Resource Economics, revised 30 Jun 2014.
  3. 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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