The Economics of Groundwater

James Roumasset and Christopher Wada

No 2012-4, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa

Abstract: We provide a synthesis of the economics of groundwater with a focus on optimal management and the Pearce equation for renewable resources. General management principles developed through the solution of a single aquifer optimization problem are extended to the management of multiple resources including additional groundwater aquifers, surface water, recycled wastewater, and upland watersheds. Given an abundant (albeit expensive) substitute, optimal management is sustainable in the long run. We also discuss the open-access equilibrium for groundwater and the conditions under which the Gisser-Sanchez effect (the result that the present value generated by competitive resource extraction and that generated by optimal control of groundwater are nearly identical) is valid. From the models and examples discussed, one can conclude that optimization across any number of dimensions (e.g. space, time, quality) is driven by a system shadow price, and augmenting groundwater with available alternatives lessens scarcity and increases welfare if timed appropriately. Other rules-of-thumb including historical cost recovery, independent management of separate aquifers, and maximum sustainable yield are inefficient and may involve large welfare losses.

Keywords: Groundwater; renewable resources; dynamic optimization; sustainable yield; Pearce equation; marginal user cost; conjunctive use; water institutions; Gisser-Sanchez effect; governance (search for similar items in EconPapers)
JEL-codes: Q20 Q25 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-06
New Economics Papers: this item is included in nep-tre and nep-tur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://uhero.hawaii.edu/wp-content/uploads/2019/08/WP_2012-4.pdf First version, 2012 (application/pdf)

Related works:
Working Paper: The Economics of Groundwater (2012)
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:hae:wpaper:2012-4

Access Statistics for this paper

More papers in Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa Contact information at EDIRC.
Bibliographic data for series maintained by UHERO ().