Simple Mechanisms for Managing Complex Aquifers
AbstractStandard economic models of groundwater management assume perfect transmissivity (i.e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, and/or homogenous agents. In this article, we develop a model relaxing these assumptions. Although our model generalizes to an arbitrary number of cells, we are able to obtain key insights with a two-cell finite-horizon differential game. We find a simple linear mechanism that induces the socially optimal extraction path in Markov-perfect equilibrium. Moreover, implementation requires that the regulator need only monitor the state of the resource (e.g., depth of the aquifer), not individual extraction rates. We illustrate the mechanism with a simulation based on data from the Indian state of Andhra Pradesh. The simulation suggests that significant welfare loss may occur if the regulator disregards physical and economic complexity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Center for Environmental Economics, U.S. Environmental Protection Agency in its series NCEE Working Paper Series with number 200905.
Length: 32 pages
Date of creation: Oct 2009
Date of revision: Oct 2009
Contact details of provider:
Postal: 1200 Pennsylvania Ave., N.W., Washington, D.C. 20460
Web page: http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/homepage
More information through EDIRC
groundwater; differential games; imperfect monitoring;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
- 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.
- Khalatbari, Firauzeh, 1977. "Market Imperfections and the Optimum Rate of Depletion of Natural Resources," Economica, London School of Economics and Political Science, vol. 44(176), pages 409-14, November.
- Reddy, V. Ratna, 2005. "Costs of resource depletion externalities: a study of groundwater overexploitation in Andhra Pradesh, India," Environment and Development Economics, Cambridge University Press, vol. 10(04), pages 533-556, August.
- Aggarwal, Rimjhim M. & Narayan, Tulika A., 2004. "Does inequality lead to greater efficiency in the use of local commons? The role of strategic investments in capacity," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 163-182, January.
- Hassan Benchekroun & Ngo Van Long, 1997.
"Efficiency Inducing Taxation for Polluting Oligopolists,"
CIRANO Working Papers
- Benchekroun, Hassan & van Long, Ngo, 1998. "Efficiency inducing taxation for polluting oligopolists," Journal of Public Economics, Elsevier, vol. 70(2), pages 325-342, November.
- Xepapadeas, A. P., 1992. "Environmental policy design and dynamic nonpoint-source pollution," Journal of Environmental Economics and Management, Elsevier, vol. 23(1), pages 22-39, July.
- Naomi Zeitouni & Ariel Dinar, 1997. "Mitigating negative water quality and quality externalities by joint mangement of adjacent aquifers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 1-20, January.
- Griffin, Ronald C. & Montgomery, John M. & Rister, M. Edward, 1987. "Selecting Functional Form In Production Function Analysis," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(02), December.
- Athanassoglou, Stergios, 2009. "The Effect of Uncertainty on Pollution Control Policy," MPRA Paper 16898, University Library of Munich, Germany.
- Santiago Rubio & Begoña 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.
- Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329.
- Strand, Jon, 2010. "The full economic cost of groundwater extraction," Policy Research Working Paper Series 5494, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cynthia Morgan).
If references are entirely missing, you can add them using this form.