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

James Roumasset and Christopher Wada

No 2010-12, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa

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.

Keywords: Renewable resources; dynamic optimization; groundwater allocation; watershed conservation; multiple resource stocks (search for similar items in EconPapers)
JEL-codes: C61 Q25 Q28 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2010-08
New Economics Papers: this item is included in nep-env
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Citations: View citations in EconPapers (2)

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Working Paper: Optimal Provision and Finance of Ecosystem Services: the Case of Watershed Conservation and Groundwater Management (2010) Downloads
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