Drought and Groundwater Management

Eirik S. Amundsen and Frank Jensen

No 5968, CESifo Working Paper Series from CESifo

Abstract: This paper considers the problem of a water management authority faced with the threat of a drought that hits at an uncertain date. Three management policies are investigated: i) a laissez-faire (open-access) policy of automatic adjustment through a zero marginal private net benefit condition, ii) a policy of optimal dynamic management ignoring the threat of the drought and relying on automatic adjustments through a zero marginal social net benefit condition, iii) an economically optimal dynamic policy taking account of the threat of a drought. In particular, we show that the optimal pre-drought steady-state equilibrium stock size of water under policy iii) is smaller than under policy ii) and, hence, a precautionary stock size should not be built up prior to the drought.

Keywords: drought; groundwater management; uncertainty (search for similar items in EconPapers)
JEL-codes: Q20 Q22 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5968

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