Drought and Groundwater Management

Eirik S. Amundsen () and Frank Jensen ()
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Eirik S. Amundsen: Department of Economics, the University of Bergen
Frank Jensen: Department of Food and Resource Economics, University of Copenhagen

No 2016/04, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: This paper considers the problem of a water management authority faced with the threat of a drought that hits at an uncertain date. Three management policies are investigated: i) a laissez-faire (open-access) policy of automatic adjustment through a zero marginal private net benefit condition, ii) a policy of optimal dynamic management ignoring the threat of the drought and relying on automatic adjustments through a zero marginal social net benefit condition, iii) an economically optimal dynamic policy taking account of the threat of a drought. In particular, we show that the optimal pre-drought steady-state equilibrium stock size of water under policy iii) is smaller than under policy ii) and, hence, a precautionary stock size should not be built up prior to the drought.

Keywords: drought; groundwater management; uncertainty (search for similar items in EconPapers)
JEL-codes: Q20 Q22 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-06
New Economics Papers: this item is included in nep-agr and nep-ger
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Persistent link: https://EconPapers.repec.org/RePEc:foi:wpaper:2016_04

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