Drought and groundwater management

Eirik Schrøder Amundsen () and Frank Jensen ()
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Eirik Schrøder Amundsen: Department of Economics, University of Bergen, Norway, Postal: P.O.Box 7800, 5020 Bergen, Norway, http://www.uib.no/en/persons/Eirik.Schr%C3%B8der.Amundsen
Frank Jensen: Department of Food and Resource Economics, University of Copenhagen, Postal: P.O.Box 2177 , 1017 Copenhagen, Denmark, http://ifro.ku.dk/english/staff/?pure=en/persons/325897

No 05/16, Working Papers in Economics from University of Bergen, Department of 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: 34 pages
Date: 2016-06-27
New Economics Papers: this item is included in nep-agr and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2016_005

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