A Deterministic Smart Market Model for Groundwater

John F. Raffensperger (), Mark W. Milke () and E. Grant Read ()
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John F. Raffensperger: Department of Management, University of Canterbury, Christchurch, New Zealand
Mark W. Milke: Department of Civil and Natural Resources Engineering, University of Canterbury, Christchurch, New Zealand
E. Grant Read: Department of Management, University of Canterbury, Christchurch, New Zealand

Operations Research, 2009, vol. 57, issue 6, 1333-1346

Abstract: Efficient management of water requires balancing environmental needs, externality considerations, and economic efficiency. Toward that end, this paper presents a deterministic linear program that could be used to operate a smart spot market for groundwater. The market design uses the existing hydrological programs MODFLOW and GWM along with standard linear programming methods. In principle, a market could be set up anywhere that a MODFLOW model is available. The market design has parallels to markets in the electricity and gas sectors, which we discuss. We present a case study with notional bids for Marlborough, New Zealand. Our approach would reduce transaction costs for a water market, reduce users' risk, and increase the reliability of environmental flows. We discuss a number of cautions and limitations to the model and recommend further work on introducing a stochastic framework to the model.

Keywords: games/group decisions; bidding/auctions; environment; natural resources; water resources (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (9)

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