Groundwater Extraction in the South Korea’s Jeju Island: A Real Options Game Approach under Price Uncertainty

Jaehyung Lee and Heesun Jang
Additional contact information
Jaehyung Lee: ESG Innovation Center, SK Telecom, Seoul-si 04539, Korea
Heesun Jang: Department of Economics, Jeonbuk National University, Jeonju-si 54896, Korea

Sustainability, 2021, vol. 13, issue 6, 1-11

Abstract: This paper uses a standard non-cooperative sequential game with two homogeneous players to analyze investment options of groundwater development project in South Korea’s Jeju island. The model is constructed as an option game taking the uncertainty of water price and the irreversibility of investment into account. The results show that the threshold water price of follower increases with the investment scale of both the leader and the follower while the threshold water price for the leader decreases as the investment scale of the leader increases. This makes the leader choose strategies to maximize the amount of groundwater extraction regardless of the follower’s strategy. Based on the results, it is recommended for policymakers to manage sustainable use of groundwater based on the policy measures such as the groundwater extraction quota system.

Keywords: real option game; groundwater extraction; uncertainty; irreversibility; Jeju island (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/13/6/3431/pdf (application/pdf)
https://www.mdpi.com/2071-1050/13/6/3431/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:6:p:3431-:d:520591

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().