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Cooperative Management of Groundwater Resources in the Presence of Environmental Externalities

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  • Encarna Esteban

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  • Ariel Dinar

    ()

Abstract

This paper investigates how cooperation among users can achieve a better management of groundwater in the presence of environmental externalities. Cooperation allows users to internalize the damages caused by their activities and reduce extractions. The paper develops a game theoretical framework to assess the value of cooperation in an aquifer that is divided into three sub-aquifers that are being overly exploited. Two types of externalities are modeled: first, water extractions in each sub-aquifer impact water levels in neighboring sub-aquifers (extraction externality). Second, the three sub-aquifers are also connected to an ecosystem and thus decisions in each sub-aquifer affect the health of the ecosystem (environmental externality). A cooperative game theory model is applied. The model empirically shows how the uncontrolled extractions in each sub-aquifer affects neighboring groundwater users but also cause severe impacts to the linked ecosystem. The model is tested empirically in one of the most important aquifers in Spain, the Eastern la Mancha aquifer. The results illustrate how both extraction and environmental externalities interact in affecting the likelihood of cooperation among the users. The paper estimates the value of cooperation and its stability with and without the environmental externality. Copyright Springer Science+Business Media B.V. 2013

Suggested Citation

  • Encarna Esteban & Ariel Dinar, 2013. "Cooperative Management of Groundwater Resources in the Presence of Environmental Externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(3), pages 443-469, March.
  • Handle: RePEc:kap:enreec:v:54:y:2013:i:3:p:443-469
    DOI: 10.1007/s10640-012-9602-2
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Ning & Wu, Tao & Wang, Bing & Dong, Liang & Ren, Jingzheng, 2016. "Sustainable water resource and endogenous economic growth," Technological Forecasting and Social Change, Elsevier, vol. 112(C), pages 237-244.
    2. Meißner, Nathalie, 2013. "The incentives of private companies to invest in protected area certificates: How coalitions can improve ecosystem sustainability," Ecological Economics, Elsevier, vol. 95(C), pages 148-158.
    3. Willy, Daniel Kyalo & Kuhn, Arnim & Müller, Karin Holm, 2016. "Analysis of participation in collective action initiatives for addressing unilateral agri-environmental externalities," 2016 AAAE Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 249268, African Association of Agricultural Economists (AAAE).

    More about this item

    Keywords

    Cooperation; Non-cooperation; Externalities; Common-pool resources; Groundwater management; Ecosystem; Game theory; Shapley value; Nash-Harsanyi solution; Core; Public choice; D62; D7; Q25; Q28;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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