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The Economics of Groundwater

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  • James Roumasset

    ()
    (UHERO, University of Hawaii at Manoa)

  • Christopher Wada

    ()
    (UHERO, University of Hawaii at Manoa)

Abstract

We provide a synthesis of the economics of groundwater with a focus on optimal management and the Pearce equation for renewable resources. General management principles developed through the solution of a single aquifer optimization problem are extended to the management of multiple resources including additional groundwater aquifers, surface water, recycled wastewater, and upland watersheds. Given an abundant (albeit expensive) substitute, optimal management is sustainable in the long run. We also discuss the open-access equilibrium for groundwater and the conditions under which the Gisser-Sanchez effect (the result that the present value generated by competitive resource extraction and that generated by optimal control of groundwater are nearly identical) is valid. From the models and examples discussed, one can conclude that optimization across any number of dimensions (e.g. space, time, quality) is driven by a system shadow price, and augmenting groundwater with available alternatives lessens scarcity and increases welfare if timed appropriately. Other rules-of-thumb including historical cost recovery, independent management of separate aquifers, and maximum sustainable yield are inefficient and may involve large welfare losses.

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Bibliographic Info

Paper provided by University of Hawaii Economic Research Organization, University of Hawaii at Manoa in its series Working Papers with number 2012-4.

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Length: 35 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:hae:wpaper:2012-4

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Keywords: Groundwater; renewable resources; dynamic optimization; sustainable yield; Pearce equation; marginal user cost; conjunctive use; water institutions; Gisser-Sanchez effect; governance;

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References

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  1. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  2. Tsur, Yacov & Graham-Tomasi, Theodore, 1991. "The buffer value of groundwater with stochastic surface water supplies," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 201-224, November.
  3. Chakravorty, Ujjayant & Umetsu, Chieko, 2003. "Basinwide water management: a spatial model," Journal of Environmental Economics and Management, Elsevier, vol. 45(1), pages 1-23, January.
  4. Koundouri, Phoebe, 2004. "Current issues in the economics of groundwater resource management," MPRA Paper 38425, University Library of Munich, Germany.
  5. Worthington, Virginia E. & Burt, Oscar R. & Brustkern, Richard L., 1985. "Optimal management of a confined groundwater system," Journal of Environmental Economics and Management, Elsevier, vol. 12(3), pages 229-245, September.
  6. Roumasset, James A. & Wada, Christopher A., 2012. "Ordering the extraction of renewable resources: The case of multiple aquifers," Resource and Energy Economics, Elsevier, vol. 34(1), pages 112-128.
  7. Shawn Arita & Christopher Edmonds & Sumner La Croix & James Mak, 2009. "The Impact of Approved Destination Status on Chinese Travel Abroad: An Economic Analysis," Working Papers 200918, University of Hawaii at Manoa, Department of Economics.
  8. James E. T. Moncur & Richard L. Pollock, 1988. "Scarcity Rents for Water: A Valuation and Pricing Model," Land Economics, University of Wisconsin Press, vol. 64(1), pages 62-72.
  9. Alberto Abadie, 2005. "Semiparametric Difference-in-Differences Estimators," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 1-19.
  10. Roumasset James & Wada Christopher A, 2011. "Ordering Renewable Resources: Groundwater, Recycling, and Desalination," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, May.
  11. Kaiser, Brooks & Roumasset, James, 2002. "Valuing indirect ecosystem services: the case of tropical watersheds," Environment and Development Economics, Cambridge University Press, vol. 7(04), pages 701-714, October.
  12. James Roumasset & Nori Tarui, 2010. "Governing the Resource: Scarcity-Induced Institutional Change," Working Papers 201015, University of Hawaii at Manoa, Department of Economics.
  13. Thomas Kaeo Duarte & Sittidaj Pongkijvorasi & James Roumasset & Daniel Amato & Kimberly Burnett, 2010. "Optimal Management of a Hawaiian Coastal Aquifer with Near-Shore Marine Ecological Interactions," Working Papers 201021, University of Hawaii at Manoa, Department of Economics.
  14. Brozovic, Nicholas & Sunding, David L. & Zilberman, David, 2010. "On the spatial nature of the groundwater pumping externality," Resource and Energy Economics, Elsevier, vol. 32(2), pages 154-164, April.
  15. Knapp Keith C. & Olson Lars J., 1995. "The Economics of Conjunctive Groundwater Management with Stochastic Surface Supplies," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 340-356, May.
  16. Basharat A. Pitafi & James A. Roumasset, 2009. "Pareto-Improving Water Management over Space and Time: The Honolulu Case," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 138-153.
  17. Knapp, Keith C. & Baerenklau, Kenneth A., 2006. "Ground Water Quantity and Quality Management: Agricultural Production and Aquifer Salinization over Long Time Scales," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(03), December.
  18. Darrell Krulce & James A. Roumasset & Tom Wilson, 1997. "Optimal Management of a Renewable and Replaceable Resource: The Case of Coastal Groundwater," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1218-1228.
  19. 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.
  20. James Roumasset & Christopher Wada, 2010. "Optimal Provision and Finance of Ecosystem Services: the Case of Watershed Conservation and Groundwater Management," Working Papers 2010-12, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
  21. Naudé, Wim & Saayman, Andrea, 2005. "Determinants of tourist arrivals in Africa: a panel data regression analysis," MPRA Paper 16479, University Library of Munich, Germany.
  22. 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.
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Cited by:
  1. James Roumasset & Christopher Wada, 2014. "Integrated Groundwater Resource Management," Working Papers 201414, University of Hawaii at Manoa, Department of Economics.

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