Groundwater Economics without Equations

James Roumasset and Christopher Wada

No 2014-8, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa

Abstract: In many parts of the world, irrigation and groundwater consumption are largely dependent on groundwater. Minimizing the adverse effects of water scarcity requires optimal as well as sustainable groundwater management. A common recommendation is to limit groundwater extraction to maximum sustainable yield (MSY). Although the optimal welfare-maximizing path of groundwater extraction converges to MSY in some cases, MSY generates waste in the short and medium term due to ambiguity regarding the transition to the desired long-run stock level and failure to account for the full costs of the resource. However, the price that incentivizes optimal consumption often exceeds the physical costs of extracting and distributing groundwater, which poses a problem for public utilities facing zero excess-revenue constraints. We discuss how the optimal price can be implemented in a revenue-neutral fashion using an increasing block pricing structure. The exposition is non-technical. More advanced references on groundwater resource management are also provided.

Keywords: Watershed management; natural capital; invasive species; groundwater economics (search for similar items in EconPapers)
Pages: 8 pages
Date: 2014-05
New Economics Papers: this item is included in nep-agr and nep-env
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