Drought and Optimal Groundwater Managment

Eirik S. Amundsen ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper considers the problem of a water management authority that is faced with the threat of a drought that will take place at an uncertain date. Three management policies are investigated: i) the laissez-faire policy of automatic regulation through Open Access mechanisms, ii) the policy of keeping a rationed level of water usage until the water table is restored, and iii) an economically optimal policy taking account of the probability of a drought and the fact that water is an asset (a stock of natural capital). In particular, it is shown that the optimal pre-drought steady-state stock of water is smaller than the stock that would be optimal in the no-drought case. Hence, no precautionary stock is built up. However, a more extensive drought period will lead to a larger pre-drought steady-state stock.

Keywords: Drought; groundwater; economic management; uncertainty (search for similar items in EconPapers)
JEL-codes: Q20 Q25 (search for similar items in EconPapers)
Date: 1999
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:10902

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