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Dynamic adaptation to resource scarcity and backstop availability: theory and application to groundwater

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  • Koundouri, Phoebe
  • Christou, Christina

Abstract

In this paper we analyse the optimal management of a renewable resource (groundwater) with stock-dependent extraction cost and a backstop substitute, facing two-sector linear demands. Application to the Kiti region in Cyprus demonstrates the model’s performance and is used to test for the difference between optimal and myopic behaviour. It is found that the presence of a backstop resource diminishes the importance of optimal dynamic behaviour, whereas in the absence of backstop the optimal control solution yields a value for social welfare significantly larger than the myopic policy.

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  • 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, vol. 50(2), pages 1-19, June.
    • Handle: RePEc:ags:aareaj:116930
    DOI: 10.22004/ag.econ.116930
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    1. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 703-740, December.
    2. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
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    5. Provencher Bill & Burt Oscar, 1993. "The Externalities Associated with the Common Property Exploitation of Groundwater," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 139-158, March.
    6. 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.
    7. Tsur, Yacov & Zemel, Amos, 2000. "R&D policies for desalination technologies," Agricultural Economics, Blackwell, vol. 24(1), pages 73-85, December.
    8. Kim, C. S. & Moore, Michael R. & Hanchar, John J. & Nieswiadomy, Michael, 1989. "A dynamic model of adaptation to resource depletion: theory and an application to groundwater mining," Journal of Environmental Economics and Management, Elsevier, vol. 17(1), pages 66-82, July.
    9. Micha Gisser & Abraham Mercado, 1973. "Economic Aspects of Ground Water Resources and Replacement Flows in Semiarid Agricultural Areas," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 55(3), pages 461-466.
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    Cited by:

    1. Hubert Stahn & Agnès Tomini, 2015. "Rainwater Harvesting under Endogenous Capacity of Storage : a Solution to Aquifer Preservation," Annals of Economics and Statistics, GENES, issue 119-120, pages 209-234.
    2. Nasim, Sanval & Helfand, Steven & Dinar, Ariel, 2020. "Groundwater management under heterogeneous land tenure arrangements," Resource and Energy Economics, Elsevier, vol. 62(C).
    3. 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.
    4. Hubert Stahn & Agnes Tomini, 2014. "On the Environmental Efficiency of Water Storage: The Case of a Conjunctive Use of Ground and Rainwater," Working Papers halshs-01083461, HAL.
    5. Liu, Zhuo & Suter, Jordan F. & Messer, Kent D. & Duke, Joshua M. & Michael, Holly A., 2014. "Strategic entry and externalities in groundwater resources: Evidence from the lab," Resource and Energy Economics, Elsevier, vol. 38(C), pages 181-197.
    6. Roumasset, James & Wada, Christopher A., 2013. "A dynamic approach to PES pricing and finance for interlinked ecosystem services: Watershed conservation and groundwater management," Ecological Economics, Elsevier, vol. 87(C), pages 24-33.
    7. Phoebe Koundouri & Ebun Akinsete & Nikolaos Englezos & Xanthi Kartala & Ioannis Souliotis & Josef Adler, 2017. "Economic instruments, behaviour and incentives in groundwater management," DEOS Working Papers 1711, Athens University of Economics and Business.
    8. Marta Biancardi & Gianluca Iannucci & Giovanni Villani, 2022. "An evolutionary game on compliant and non-compliant firms in groundwater exploitation," Annals of Operations Research, Springer, vol. 318(2), pages 831-847, November.
    9. Zhang Wei-Bin, 2011. "Economic Growth And Dynamics Of Renewable Resource With Housing, Agricultural And Resource Land Use," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 6(2), pages 151-174, August.
    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. 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.
    12. Elsa Martin, 2010. "Are the gains from a groundwater management policy so low?," INRA UMR CESAER Working Papers 2010/2, INRA UMR CESAER, Centre d'’Economie et Sociologie appliquées à l'’Agriculture et aux Espaces Ruraux.
    13. Phoebe Koundouri & Nikolaos Englezos & Xanthi Kartala & Mike Tsionas, 2019. "A Decision-Analytic Framework to explore the water-energy-food nexus in complex and transboundary water resources systems, with Climate Change Uncertainty," DEOS Working Papers 1907, Athens University of Economics and Business.
    14. Doole, Graeme J., 2009. "A Practical Algorithm for Multiple-Phase Control Systems in Agricultural and Natural Resource Economics," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), pages 1-21, April.
    15. Nathaniel H Merrill & Todd Guilfoos, 2018. "Optimal Groundwater Extraction under Uncertainty and a Spatial Stock Externality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 220-238.
    16. Phoebe Koundouri & Vassilis Skianis, 2015. "Socio-Economics and Water Management: Revisiting the Contribution of Economics in the Implementation of the Water Framework Directive in Greece and Cyprus," DEOS Working Papers 1506, Athens University of Economics and Business.
    17. Kim, C.S. & Fuglie, Keith O. & Wallander, Steve & Wechsler, Seth, 2015. "Endogenous Technical Change and Groundwater Management: Revisiting the Gisser-Sanchez Paradox," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205350, Agricultural and Applied Economics Association.
    18. Kahil, Mohamed Taher & Albiac, José, 2013. "Greenhouse gases mitigation policies in the agriculture of Aragon, Spain," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 2(1), pages 1-24, April.
    19. Phoebe Koundouri & Georgios I. Papayiannis & Athanasios Yannacopoulos, 2022. "Optimal Control Approaches to Sustainability under Uncertainty," DEOS Working Papers 2215, Athens University of Economics and Business.
    20. Wada, Christopher A. & Pongkijvorasin, Sittidaj & Burnett, Kimberly M., 2020. "Mountain-to-sea ecological-resource management: Forested watersheds, coastal aquifers, and groundwater dependent ecosystems," Resource and Energy Economics, Elsevier, vol. 59(C).
    21. Julia de Frutos Cachorro & Lucia Sbragia, 2024. "Farmers' Adaptive Investments and Groundwater Resource Impact in a Changing Climate," UB School of Economics Working Papers 2024/475, University of Barcelona School of Economics.
    22. Sayre, Susan Stratton & Taraz, Vis, 2019. "Groundwater depletion in India: Social losses from costly well deepening," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 85-100.
    23. Pongkijvorasin, Sittidaj & Roumasset, James & Duarte, Thomas Kaeo & Burnett, Kimberly, 2010. "Renewable resource management with stock externalities: Coastal aquifers and submarine groundwater discharge," Resource and Energy Economics, Elsevier, vol. 32(3), pages 277-291, August.

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