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Missing Markets and Redundant Reservoirs

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  • Ben Groom
  • Tim Swanson

Abstract

This paper uses a two-sector, two-period,spatial model of groundwater usage withstochastic surface water supply to illustratethe potential for the suboptimal management ofthe timing of groundwater uses. A ``timeprofile externality'' is said to exist when thetiming of groundwater extraction by one set ofusers impacts on the time profile of wateravailability to another set of users. Theexistence of the time of use externalitydepends on the presence of importantdifferences in the preferences between thecontrol and non-control sectors. It alsodepends on the absence of the markets thatwould internalise these differences. Oneimportant implication of the existence of suchexternalities is that they can inducesub-optimal insurance investments in the formof water storage capital, i.e., unnecessarysurface water reservoirs. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Ben Groom & Tim Swanson, 2003. "Missing Markets and Redundant Reservoirs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(1), pages 125-144, September.
    • Handle: RePEc:kap:enreec:v:26:y:2003:i:1:p:125-144
    DOI: 10.1023/A:1025677419600
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    References listed on IDEAS

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    1. Tsur, Yacov & Graham-Tomasi, Theodore, 1991. "The buffer value of groundwater with stochastic surface water supplies," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 201-224, November.
    2. 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.
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    Cited by:

    1. Koundouri, Phoebe, 2005. "Design and Implementation of an Integrated Water Management Approach," MPRA Paper 38440, University Library of Munich, Germany.
    2. Henry Thompson, 2013. "Resource Rights and Markets in a General Equilibrium Model of Production," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(1), pages 131-139, September.
    3. Phoebe Koundouri & Ben Groom, 2002. "Groundwater Management: An Overview of Hydro-geology, Economic Values and Principles of Management," DEOS Working Papers 0203, Athens University of Economics and Business.

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