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Optimal Provision and Finance of Ecosystem Services: the Case of Watershed Conservation and Groundwater Management

Author

Listed:
  • James Roumasset

    () (University of Hawaii, Department of Economics
    University of Hawaii Econonmic Research Organization)

  • Christopher Wada

    () (University of Hawaii Econonmic Research Organization)

Abstract

Payments for ecosystem services should be informed by how both the providing-resource and the downstream resource are managed. We develop an integrated model that jointly optimizes conservation investment in a watershed that recharges a downstream aquifer and groundwater extraction from the aquifer. Volumetric user-fees to finance watershed investment induce inefficient water use, inasmuch as conservation projects actually lower the optimal price of groundwater. We propose a lump-sum conservation surcharge that preserves efficient incentives and fully finances conservation investment. Inasmuch as proper watershed management counteracts the negative effects of water scarcity, it also serves as adaptation to climate change. When recharge is declining, the excess burden of non-optimal watershed management increases.

Suggested Citation

  • James Roumasset & Christopher Wada, 2010. "Optimal Provision and Finance of Ecosystem Services: the Case of Watershed Conservation and Groundwater Management," Working Papers 201011, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201011
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_10-11.pdf
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    Cited by:

    1. James Roumasset & Christopher Wada, 2012. "The Economics of Groundwater," Working Papers 2012-4, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.

    More about this item

    Keywords

    Renewable resources; dynamic optimization; groundwater allocation; watershed conservation; multiple resource stocks;

    JEL classification:

    • 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
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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