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Three approaches to measuring natural resource scarcity: theory and application to groundwater

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  • Koundouri, Phoebe

Abstract

Efficient pricing of a resource incorporates both marginal cost of extraction and scarcity rents. Since groundwater resources exhibit natural supply constraints, scarcity rents must be imposed on current users. Given the difficulty of establishing clear groundwater ownership rights, scarcity value frequently goes unrecognized and is difficult to estimate. This results in inefficient pricing and misallocation of the resource. This thesis builds on three different methods to develop appropriate theoretical and empirical models relevant for indirect estimation of these shadow scarcity rents, which we consider as the initial and most challenging step towards efficient groundwater management. Empirical analyses are based on economic and hydrological data from t he island of Cyprus, representative of semi-arid regions. Chapter 2 critically assesses previous theoretical and empirical attempts to derive the increase in social benefits from efficient pricing of groundwater and examines the potential for groundwater management. This potential is seriously challenged by Gisser-Sanchez's Effect (GSI): i.e. net benefits from optimally managing groundwater are insignificant for all practical purposes. Chapter 3 attempts a reexamination of GSI by developing a dynamic model of adaptation to increasing groundwater scarcity, when backstop technology is available. Both groundwater scarcity rents and management benefits are derived by simulating the optimal and competitive-commonality solutions. Results point to the absence of GSI in aquifers facing complete exhaustion in the near future. Chapter 4 proposes a refinement of revealed preference methods of valuation, by combining the hedonic and travel cost methods, and applies the refined model to derive the willingness to pay for groundwater quality. It is claimed t hat hedonic valuation of quality attributes can be misleading when the exogeneity assumption, with respect to these attributes, to sample selection is violated. Hence, the simultaneity between hedonic valuation and sample selection is modelled in the context of producer behaviour and investigated empirically in the case of land demanded for use as an input either in agricultural production or touristic development. The empirical analysis suggests that failing to correct for sample selection results in a biased valuation of groundwater quality. In chapter 5 duality theory is employed to develop the distance function methodology of deriving shadow groundwater scarcity rents. The empirical application of the model involves estimating a stochastic input distance function from which the in situ shadow price of groundwater is derived. Chapter 6 concludes the thesis by comparing and contrasting the magnitude of groundwater scarcity rents and willingness to pay for scarce groundwater quality, derived from the models put forward in this research.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38265.

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Date of creation: 24 Oct 2000
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Handle: RePEc:pra:mprapa:38265

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Keywords: Natural resources; scarcity; groundwater;

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  16. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Phoebe Koundouri, . "Current issues in the economics of groundwater resource management," DEOS Working Papers 0402, Athens University of Economics and Business.
  2. Marita Laukkanen & Phoebe Koundouri, . "Competition versus coopertion in groundwater extraction: A stochastic framework with heteregoneous agents," DEOS Working Papers 0605, Athens University of Economics and Business.
  3. Koundouri, Phoebe & Nauges, Celine, 2005. "On Production Function Estimation with Selectivity and Risk Considerations," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 30(03), December.
  4. Phoebe Koundouri & Vassilis Babalos & Mavra Stithou & Marianna Mousoulidou & Aris Mousoulides & Ioannis Anastasiou & Katerina Vasiliou, 2013. "A Micro-Econometric Approach to Deriving Use and Non-Use Values of in-situ Groundwater: The Vosvozis Case Study, Greece," Grantham Research Institute on Climate Change and the Environment Working Papers, Grantham Research Institute on Climate Change and the Environment 128, Grantham Research Institute on Climate Change and the Environment.
  5. Ben Groom & Phoebe Koundouri & Timothy Swanson, . "Cost�benefit analysis and efficient water allocation in Cyprus," DEOS Working Papers 0502, Athens University of Economics and Business.
  6. Groom, Ben & Koundouri, Phoebe & Swanson, Timothy, 2005. "Cost–benefit analysis and efficient water allocation in Cyprus," MPRA Paper 38441, University Library of Munich, Germany.
  7. Koundouri, Phoebe & Christou, Christina, 2006. "Dynamic adaptation to resource scarcity and backstop availability: theory and application to groundwater," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, Australian Agricultural and Resource Economics Society, vol. 50(2), June.
  8. Phoebe Koundouri, . "Design and Implementation of an Integrated Water Management Approach," DEOS Working Papers 0501, Athens University of Economics and Business.
  9. Phoebe Koundouri & Osiel Davila & Yannis Anastasiou & Antonios Antypas & Theodoros Mavrogiorgis & Aris Mousoulides & Marianna Mousoulidou & Katerina Vasiliou, 2013. "An Econometric Analysis of Agricultural Production, Focusing on the Shadow Price of Groundwater: Policies Towards Socio-Economic Sustainability," DEOS Working Papers 1313, Athens University of Economics and Business.
  10. Phoebe Koundouri & Panos Pashardes, 2003. "Hedonic Price Analysis and Selectivity Bias," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 26(1), pages 45-56, September.

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