UNCERTAINTY AND IRREVERSIBILITY IN GROUNDWATER RESOURCE MANAGEMENT

Yacov Tsur and Amos Zemel

No 13590, Staff Papers from University of Minnesota, Department of Applied Economics

Abstract: Optimal exploitation of renewable groundwater resources when extraction affects the probability of occurrence of an irreversible event is studied. The term irreversible signifies that the event occurrence renders the resource obsolete. It is found that uncertainty concerning the event occurrence has a profound effect. Under certainty - when the stock level below which the event occurs is known in advance - the optimal state process converges to a unique equilibrium state. Under uncertainty, when the event occurrence level is unknown, we identify equilibrium intervals and show that optimal processes initiated elsewhere converge to a boundary of one of these intervals. Inside an equilibrium interval, the expected loss due to the event occurrence is so high that it does not pay to extract in excess of recharge, even though under certainty doing so would be beneficial. These properties are illuminated by means of an example for which analytic solutions are derived.

Keywords: Resource/Energy; Economics; and; Policy (search for similar items in EconPapers)
Pages: 35
Date: 1994
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Uncertainty and Irreversibility in Groundwater Resource Management (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umaesp:13590

DOI: 10.22004/ag.econ.13590

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