Optimal Mechanisms for Heterogeneous Multi-cell Aquifers

Stergios Athanassoglou, Glenn Sheriff, Tobias Siegfried and Woonghee Tim Huh
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Stergios Athanassoglou: Fondazione Eni Enrico Mattei and Euro-Mediterranean Center on Climate Change
Tobias Siegfried: Water Center of the Earth Institute, Columbia University
Woonghee Tim Huh: Sauder School of Business, University of British Columbia
Authors registered in the RePEc Author Service: Stergios Athanasoglou

No 2011.28, Working Papers from Fondazione Eni Enrico Mattei

Abstract: Standard economic models of groundwater management impose restrictive assumptions regarding perfect transmissivity (i.e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, observability of individual extraction rates, and/or homogenous agents. In this article, we derive regulatory mechanisms for inducing the socially optimal extraction path in Markov perfect equilibrium for aquifers in which these assumptions do not hold. In spite of the complexity of the underlying system, we identify an interesting case in which a simple linear mechanism achieves the social optimum. To illustrate potential problems that can arise by erroneously imposing simplifying assumptions, we conduct a simulation based on data from the Indian state of Andhra Pradesh.

Keywords: Common Property Resource; Differential Games; Groundwater Extraction; Imperfect Monitoring; Markov Perfect Equilibrium (search for similar items in EconPapers)
JEL-codes: C6 D0 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers (2012)
Working Paper: Optimal Mechanisms for Heterogeneous Multi-cell Aquifers (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2011.28

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