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Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture


  • Dionysis Latinopoulos

    (Department of Spatial Planning and Development, Aristotle University of Thessaloniki)

  • Eftichios Sartzetakis

    (Department of Economics, University of Macedonia)


A great challenge facing future agricultural water policy is to explore the potential for transition from the current myopic competitive (common) exploitation of groundwater resources to a long-term efficient and sustainable allocation. A number of economic and/or command and control instruments can be used by the relevant water authority in order to deal with the economic and environmental problems generated by competitive exploitation. However, according to previous experience in both developed and developing countries, tradable permits seem as one of the most effective and efficient instruments, especially under conditions of limited water availability. On this account, the aim of the current study is to explore the feasibility and implementation of a tradable permit system in irrigated agriculture. To this end, two distinct optimization models are applied and compared: (a) an individual farmer’s model (representing the myopic non-cooperative exploitation of groundwater) and (b) a social planner’s model (representing the cooperative and sustainable allocation). The deviation of their results shows the rationale for using a tradable permit system, while the final allocation of the social planner’s model, solved as an optimal control problem that maximizes the social welfare under specific water policy objectives, denotes the equilibrium state of this system. The two models are then applied in a typical rural area of Greece where groundwater is the only source of irrigated agriculture. The derived time paths for water consumption and water availability illustrate the significant environmental benefits from the future implementation of a tradable permit system.

Suggested Citation

  • Dionysis Latinopoulos & Eftichios Sartzetakis, 2011. "Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture," Working Papers 2011.26, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2011.26

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    Cited by:

    1. Natacha Fauvet & Jean-Christophe Pereau, 2014. "Nutrient Allowances Market and Wetland Abatement," Working Papers 2014.06, FAERE - French Association of Environmental and Resource Economists.
    2. Altvater, Susanne & de Block, Debora & Bouwma, Irene & Dworak, Thomas & Frelih-Larsen, Ana & Görlach, Benjamin & Hermeling, Claudia & Klostermann, Judith & König, Martin & Leitner, Markus & Marinova, , 2012. "Adaptation measures in the EU: Policies, costs, and economic assessment. "Climate Proofing" of key EU policies," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 110558.

    More about this item


    Tradable Water Permits; Sustainable Water Use; Irrigated Agriculture;

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • 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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