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Groundwater use under incomplete information


  • Saak, Alexander E.
  • Peterson, Jeffrey M.


In this paper, we introduce a game theoretic model of groundwater extraction in a two-cell aquifer under incomplete information. A novel assumption is that individual users have incomplete knowledge of the speed of lateral flows in the aquifer: although a user is aware that his neighbor's water use has some influence on their future water stock, they are uncertain about the degree of this impact. We find that the lack of information may either increase or decrease the rate of water use and welfare. In a two-period framework, the relevant characteristic is the ratio of the periodic marginal benefits of water use. Depending on whether this ratio is convex or concave, the average speed with which the aquifer is depleted decreases or increases when users learn more about the local hydrologic properties of groundwater. We also show that the effect of better information on the welfare of the average producer may be negative even in the situations when, on average, groundwater is allocated more efficiently across irrigation seasons.
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Suggested Citation

  • Saak, Alexander E. & Peterson, Jeffrey M., 2007. "Groundwater use under incomplete information," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 214-228, September.
  • Handle: RePEc:eee:jeeman:v:54:y:2007:i:2:p:214-228

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    References listed on IDEAS

    1. Jeffrey M. Peterson & Ya Ding, 2005. "Economic Adjustments to Groundwater Depletion in the High Plains: Do Water-Saving Irrigation Systems Save Water?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 147-159.
    2. Sanchirico, James N. & Wilen, James E., 2005. "Optimal spatial management of renewable resources: matching policy scope to ecosystem scale," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 23-46, July.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Harrington Jr. , Joseph E., 1995. "Experimentation and Learning in a Differentiated-Products Duopoly," Journal of Economic Theory, Elsevier, vol. 66(1), pages 275-288, June.
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    Cited by:

    1. Pfeiffer, Lisa & Lin, C.-Y. Cynthia, 2012. "Groundwater pumping and spatial externalities in agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 64(1), pages 16-30.
    2. Cobourn, Kelly M. & Amacher, Gregory S. & Elbakidze, Levan, 2015. "Bargaining for recharge: an analysis of cooperating and conjunctive surface water-groundwater management," 2016 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2016, San Francisco, California 212843, Agricultural and Applied Economics Association.
    3. Cobourn, Kelly M. & Crescenti, Neil F., 2011. "The Implications of Surface–Ground Water Hydrology for Optimal Conjunctive Management," Western Economics Forum, Western Agricultural Economics Association, vol. 10(02).
    4. Qiuqiong Huang & Jinxia Wang & Scott Rozelle & Stephen Polasky & Yang Liu, 2013. "The Effects of Well Management and the Nature of the Aquifer on Groundwater Resources," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(1), pages 94-116.
    5. Pamela Giselle Katic, 2010. "Spatial dynamics and optimal resource extraction," Centre for Water Economics, Environment and Policy Papers 1002, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    6. Pamela Katic, 2015. "Groundwater Spatial Dynamics and Endogenous Well Location," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 29(1), pages 181-196, January.
    7. repec:eee:resene:v:51:y:2018:i:c:p:67-83 is not listed on IDEAS
    8. Kuwayama, Yusuke & Brozović, Nicholas, 2013. "The regulation of a spatially heterogeneous externality: Tradable groundwater permits to protect streams," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 364-382.
    9. Guilfoos, Todd & Pape, Andreas D. & Khanna, Neha & Salvage, Karen, 2013. "Groundwater management: The effect of water flows on welfare gains," Ecological Economics, Elsevier, vol. 95(C), pages 31-40.
    10. 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.
    11. Saleh, Yahya & Gürler, Ülkü & Berk, Emre, 2011. "Centralized and decentralized management of groundwater with multiple users," European Journal of Operational Research, Elsevier, vol. 215(1), pages 244-256, November.
    12. Saak, Alexander E., 2008. "Groundwater Use in Asymmetric Aquifer under Incomplete Information," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6545, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Peterson, Jeffrey M. & Saak, Alexander E., 2013. "Spatial externalities in aquifers with varying thickness: Theory and numerical results for the Ogallala aquifer," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150553, Agricultural and Applied Economics Association.

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