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Three approaches to measuring natural resource scarcity: theory and application to groundwater

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  • Koundouri, Phoebe

Abstract

Efficient pricing of a resource incorporates both marginal cost of extraction and scarcity rents. Since groundwater resources exhibit natural supply constraints, scarcity rents must be imposed on current users. Given the difficulty of establishing clear groundwater ownership rights, scarcity value frequently goes unrecognized and is difficult to estimate. This results in inefficient pricing and misallocation of the resource. This thesis builds on three different methods to develop appropriate theoretical and empirical models relevant for indirect estimation of these shadow scarcity rents, which we consider as the initial and most challenging step towards efficient groundwater management. Empirical analyses are based on economic and hydrological data from t he island of Cyprus, representative of semi-arid regions. Chapter 2 critically assesses previous theoretical and empirical attempts to derive the increase in social benefits from efficient pricing of groundwater and examines the potential for groundwater management. This potential is seriously challenged by Gisser-Sanchez's Effect (GSI): i.e. net benefits from optimally managing groundwater are insignificant for all practical purposes. Chapter 3 attempts a reexamination of GSI by developing a dynamic model of adaptation to increasing groundwater scarcity, when backstop technology is available. Both groundwater scarcity rents and management benefits are derived by simulating the optimal and competitive-commonality solutions. Results point to the absence of GSI in aquifers facing complete exhaustion in the near future. Chapter 4 proposes a refinement of revealed preference methods of valuation, by combining the hedonic and travel cost methods, and applies the refined model to derive the willingness to pay for groundwater quality. It is claimed t hat hedonic valuation of quality attributes can be misleading when the exogeneity assumption, with respect to these attributes, to sample selection is violated. Hence, the simultaneity between hedonic valuation and sample selection is modelled in the context of producer behaviour and investigated empirically in the case of land demanded for use as an input either in agricultural production or touristic development. The empirical analysis suggests that failing to correct for sample selection results in a biased valuation of groundwater quality. In chapter 5 duality theory is employed to develop the distance function methodology of deriving shadow groundwater scarcity rents. The empirical application of the model involves estimating a stochastic input distance function from which the in situ shadow price of groundwater is derived. Chapter 6 concludes the thesis by comparing and contrasting the magnitude of groundwater scarcity rents and willingness to pay for scarce groundwater quality, derived from the models put forward in this research.

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  • Koundouri, Phoebe, 2000. "Three approaches to measuring natural resource scarcity: theory and application to groundwater," MPRA Paper 38265, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38265
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    Cited by:

    1. Koundouri, Phoebe & Babalos, Vassilis & Stithou, Mavra & Anastasiou, Ioannis, 2011. "A Micro-Econometric Approach to Deriving Use and Non-Use Values of in-situ Groundwater: The Vosvozis Case Study, Greece," MPRA Paper 38266, University Library of Munich, Germany.
    2. Marita Laukkanen & Phoebe Koundouri, "undated". "Competition versus coopertion in groundwater extraction: A stochastic framework with heteregoneous agents," DEOS Working Papers 0606, Athens University of Economics and Business.
    3. Koundouri, Phoebe & Christou, Christina, 2006. "Dynamic adaptation to resource scarcity and backstop availability: theory and application to groundwater," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), June.
    4. Groom, Ben & Koundouri, Phoebe & Swanson, Timothy, 2005. "Cost–benefit analysis and efficient water allocation in Cyprus," MPRA Paper 38441, University Library of Munich, Germany.
    5. Phoebe Koundouri & Osiel Davila & Yannis Anastasiou & Antonios Antypas & Theodoros Mavrogiorgis & Aris Mousoulides & Marianna Mousoulidou & Katerina Vasiliou, 2013. "An Econometric Analysis of Agricultural Production, Focusing on the Shadow Price of Groundwater: Policies Towards Socio-Economic Sustainability," DEOS Working Papers 1313, Athens University of Economics and Business.
    6. Steven M. Smith, 2017. "Economic Incentives and Conservation: Crowding-in Social Norms in a Groundwater Commons," Working Papers 2017-08, Colorado School of Mines, Division of Economics and Business.
    7. Chuan-Zhong Li & Ranjula Bali Swain, 2016. "Growth, Water Resilience, and Sustainability: A DSGE Model Applied to South Africa," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(04), pages 1-23, December.
    8. Phoebe Koundouri, 2004. "Current Issues in the Economics of Groundwater Resource Management," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 703-740, December.
    9. Phoebe Koundouri, "undated". "Design and Implementation of an Integrated Water Management Approach," DEOS Working Papers 0501, Athens University of Economics and Business.
    10. Phoebe Koundouri & Panos Pashardes, 2003. "Hedonic Price Analysis and Selectivity Bias," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(1), pages 45-56, September.
    11. Koundouri, Phoebe & Nauges, Celine, 2005. "On Production Function Estimation with Selectivity and Risk Considerations," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(03), December.
    12. Norton, D. & Hynes, S & Doherty, E & Buckley, C & Campbell, D & Stithou, M, 2012. "Using Benefit Transfer Techniques to Estimate the Value of achieving ’Good Ecological’ Status in Irish Water Bodies," Research Reports 210707, Socio-Economic Marine Research Unit, National University of Ireland, Galway.
    13. Phoebe Koundouri & Osiel Gonzalez Davila, "undated". "The Use of Ecosystem Services Approach in Guiding Water Valuation and Management: Inland and Coastal Waters," DEOS Working Papers 1334, Athens University of Economics and Business.
    14. Li, Chuan-Zhong & Bali Swain, Ranjula, 2014. "Growth, Water Resilience, and Sustainability: A DSGE Model Applied to South Africa," Working Paper Series 2014:11, Uppsala University, Department of Economics.
    15. Ben Groom & Phoebe Koundouri & Timothy Swanson, "undated". "Cost�benefit analysis and efficient water allocation in Cyprus," DEOS Working Papers 0502, Athens University of Economics and Business.

    More about this item

    Keywords

    Natural resources; scarcity; groundwater;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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