Optimal Provision and Finance of Ecosystem Services: the Case of Watershed Conservation and Groundwater Management
AbstractPayments for ecosystem services should be informed by how both the providing-resource and the downstream resource are managed. We develop an integrated model that jointly optimizes conservation investment in a watershed that recharges a downstream aquifer and groundwater extraction from the aquifer. Volumetric user-fees to finance watershed investment induce inefficient water use, inasmuch as conservation projects actually lower the optimal price of groundwater. We propose a lump-sum conservation surcharge that preserves efficient incentives and fully finances conservation investment. Inasmuch as proper watershed management counteracts the negative effects of water scarcity, it also serves as adaptation to climate change. When recharge is declining, the excess burden of non-optimal watershed management increases.
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Bibliographic InfoPaper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201011.
Length: 33 pages
Date of creation: 30 Jul 2010
Date of revision:
Other versions of this item:
- 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.
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-14 (All new papers)
- NEP-ENV-2010-08-14 (Environmental Economics)
- NEP-PPM-2010-08-14 (Project, Program & Portfolio Management)
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- James Roumasset & Christopher Wada, 2012.
"The Economics of Groundwater,"
201211, University of Hawaii at Manoa, Department of Economics.
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