Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture

Dionysis Latinopoulos and Eftichios Sartzetakis ()
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Dionysis Latinopoulos: Department of Spatial Planning and Development, Aristotle University of Thessaloniki

No 2011.26, Working Papers from Fondazione Eni Enrico Mattei

Abstract: A great challenge facing future agricultural water policy is to explore the potential for transition from the current myopic competitive (common) exploitation of groundwater resources to a long-term efficient and sustainable allocation. A number of economic and/or command and control instruments can be used by the relevant water authority in order to deal with the economic and environmental problems generated by competitive exploitation. However, according to previous experience in both developed and developing countries, tradable permits seem as one of the most effective and efficient instruments, especially under conditions of limited water availability. On this account, the aim of the current study is to explore the feasibility and implementation of a tradable permit system in irrigated agriculture. To this end, two distinct optimization models are applied and compared: (a) an individual farmer’s model (representing the myopic non-cooperative exploitation of groundwater) and (b) a social planner’s model (representing the cooperative and sustainable allocation). The deviation of their results shows the rationale for using a tradable permit system, while the final allocation of the social planner’s model, solved as an optimal control problem that maximizes the social welfare under specific water policy objectives, denotes the equilibrium state of this system. The two models are then applied in a typical rural area of Greece where groundwater is the only source of irrigated agriculture. The derived time paths for water consumption and water availability illustrate the significant environmental benefits from the future implementation of a tradable permit system.

Keywords: Tradable Water Permits; Sustainable Water Use; Irrigated Agriculture (search for similar items in EconPapers)
JEL-codes: Q15 Q25 Q28 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-agr and nep-env
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Citations: View citations in EconPapers (3)

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Working Paper: Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2011.26

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