Simple Mechanisms for Managing Complex Aquifers

Stergios Athanassoglou, Glenn Sheriff, Tobias Siegfried and Woonghee Tim Huh

No 280878, National Center for Environmental Economics-NCEE Working Papers from United States Environmental Protection Agency (EPA)

Abstract: Standard economic models of groundwater management assume perfect transmissivity (i.e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, and/or homogenous agents. In this article, we develop a model relaxing these assumptions. Although our model generalizes to an arbitrary number of cells, we are able to obtain key insights with a two-cell finite-horizon differential game. We find a simple linear mechanism that induces the socially optimal extraction path in Markov-perfect equilibrium. Moreover, implementation requires that the regulator need only monitor the state of the resource (e.g., depth of the aquifer), not individual extraction rates. We illustrate the mechanism with a simulation based on data from the Indian state of Andhra Pradesh. The simulation suggests that significant welfare loss may occur if the regulator disregards physical and economic complexity.

Keywords: Environmental Economics and Policy; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 32
Date: 2009-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/280878/files/NCEE2009-05.pdf (application/pdf)

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:ags:nceewp:280878

DOI: 10.22004/ag.econ.280878

Access Statistics for this paper

More papers in National Center for Environmental Economics-NCEE Working Papers from United States Environmental Protection Agency (EPA) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().