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Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers

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  • Stergios Athanassoglou
  • Glenn Sheriff
  • Tobias Siegfried
  • Woonghee Huh

Abstract

Standard economic models of groundwater management impose restrictive assumptions regarding perfect transmissivity (i.e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, observability of individual extraction rates, and/or homogenous agents. In this article, we derive regulatory mechanisms for inducing the socially optimal extraction path in Markov perfect equilibrium for aquifers in which these assumptions do not hold. In spite of the complexity of the underlying system, we identify an interesting case in which a simple linear mechanism achieves the social optimum. To illustrate potential problems that can arise by erroneously imposing simplifying assumptions, we conduct a simulation based on data from the Indian state of Andhra Pradesh.
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Suggested Citation

  • Stergios Athanassoglou & Glenn Sheriff & Tobias Siegfried & Woonghee Huh, 2012. "Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 265-291, June.
    • Handle: RePEc:kap:enreec:v:52:y:2012:i:2:p:265-291
    DOI: 10.1007/s10640-011-9528-0
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    Cited by:

    1. Ayres, Andrew B. & Edwards, Eric C. & Libecap, Gary D., 2018. "How transaction costs obstruct collective action: The case of California's groundwater," Journal of Environmental Economics and Management, Elsevier, vol. 91(C), pages 46-65.
    2. 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.
    3. Yacov Tsur & Amos Zemel, 2017. "Steady state properties of multi-state economic models," Canadian Journal of Economics, Canadian Economics Association, vol. 50(2), pages 506-521, May.
    4. Stahn, Hubert & Tomini, Agnes, 2021. "Externality and common-pool resources: The case of artesian aquifers," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    5. Caroline King-Okumu, 2018. "Valuing Environmental Benefit Streams in the Dryland Ecosystems of Sub-Saharan Africa," Land, MDPI, vol. 7(4), pages 1-23, November.
    6. Reinelt, Peter, 2020. "Spatial-dynamic seawater intrusion and pumping cost externalities in a confined aquifer," Resource and Energy Economics, Elsevier, vol. 59(C).
    7. 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.
    8. Chandra Kiran B. Krishnamurthy, 2017. "Optimal Management of Groundwater Under Uncertainty: A Unified Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(2), pages 351-377, June.
    9. 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.
    10. Kiran Krishnamurthy, Chandra, 2012. "Optimal Management of Groundwater under Uncertainty: A Unified Approach," CERE Working Papers 2012:19, CERE - the Center for Environmental and Resource Economics, revised 30 Jun 2014.

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    More about this item

    Keywords

    Common property resource; Differential games; Groundwater extraction; Imperfect monitoring; Markov perfect equilibrium;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D0 - Microeconomics - - General

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