On the spatial nature of the groundwater pumping externality
Most existing economic analyses of optimal groundwater management use single-cell aquifer models, which assume that an aquifer responds uniformly and instantly to groundwater pumping. In this paper, we develop an economic model of groundwater management that explicitly incorporates spatial dynamic groundwater flow equations. Calibration of our model to published economic studies of specific aquifers demonstrates that existing studies generally incorrectly estimate the magnitude of the groundwater pumping externality relative to spatially explicit models. In particular, for large aquifers with surface areas of thousands of square miles, the marginal pumping externality predicted by single-cell models may be orders of magnitude less than that predicted by a spatially explicit model, even at large distances from a pumping well. Conversely, for small aquifers with areas of a few hundred square miles or less, single-cell models reasonably approximate the pumping externality. Application of single-cell models to inappropriate settings may result in misleading policy implications due to understatement of the magnitude and spatial nature of the groundwater externality.
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- Worthington, Virginia E. & Burt, Oscar R. & Brustkern, Richard L., 1985. "Optimal management of a confined groundwater system," Journal of Environmental Economics and Management, Elsevier, vol. 12(3), pages 229-245, September.
- Burness, H. Stuart & Brill, Thomas C., 2001. "The role for policy in common pool groundwater use," Resource and Energy Economics, Elsevier, vol. 23(1), pages 19-40, January.
- 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.
- Karp, Larry, 1992. "Social Welfare in a Common Property Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 353-72, May.
- Rubio, Santiago J. & Casino, Begona, 2001. "Competitive versus efficient extraction of a common property resource: The groundwater case," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1117-1137, August.
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