Out of Sight, Not Out of Mind: Developments in Economic Models of Groundwater Management

Koundouri, Phoebe; Roseta-Palma, Catarina; Englezos, Nikolaos

doi:10.1561/101.00000091

Cited by 22 publications

(19 citation statements)

References 97 publications

(103 reference statements)

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“…Given the nature of nonrenewable groundwater as a resource that is being depleted, another necessary extension is including the temporal dimension in our definition of shadow price or economically efficient reallocation. When looking for efficient alternatives for groundwater use, intertemporal efficiency should be considered (Burt, ; Gisser & Sánchez, ; Koundouri et al, ; Negri, ; Steward et al, ). This requires not only discounting but also additional assumptions about future prices and productivity.…”

Section: Discussionmentioning

confidence: 99%

The Shadow Price of Irrigation Water in Major Groundwater‐Depleting Countries

Bierkens

Reinhard

Bruijn

et al. 2019

Water Resources Research

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In many semiarid regions with irrigation, the depletion rate of groundwater resources has increased substantially during the last decades. A possible reason for this is that the price that users pay for their water does not reflect its scarcity and value. An alternative way to assess the perceived value of water is calculating its shadow price, which is defined here as the marginal value produced, and relates to the efficiency gain from current reallocation. Here we determine the shadow price of water used for irrigation for the most important groundwater‐depleting countries and for four staple crops and one cash crop. To quantify the shadow price, the relation between the output and the water input is represented using production functions. We use globally available panel data on country‐specific crop yields and prices together with crop‐specific water consumption, calculated with the global hydrological model PCR‐GLOBWB, to parameterize the production function by country and crop with econometric analyses. Our results show that the variation of shadow prices for staple crops within several countries is high, indicating economically inefficient use of water resources, including nonrenewable groundwater. We also analyze the effects of reallocating irrigation water between crops, showing that changes in water allocation could lead to either an increase in the economic efficiency of water use or large reductions in irrigation water consumption. Our study thus provides a hydroeconomic basis to stimulate sustainable use of finite groundwater resources globally.

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Section: Discussionmentioning

confidence: 99%

The Shadow Price of Irrigation Water in Major Groundwater‐Depleting Countries

Bierkens

Reinhard

Bruijn

et al. 2019

Water Resources Research

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“…For all time periods other than during the drought we include a resource restriction in our models stating that the change in stock size between time periods is equal to the recharge minus the extraction

true({\overset{x}{true}}_{t} = \bar{g} - h_{t} true)

. In the literature, it is common to use the height of an aquifer measured in meters instead of the stock size measured in volume in the resource restriction (see, e.g., Koundouri et al, ). Within our model the stock size can only be used as an approximation for the height if there exists a one to one relation between the changes in the two variables but many hydrological studies show that this condition is not fulfilled (see, e.g., Koila, Yonli, Soro, Dara, & Vouslamoz, ).…”

Section: Benchmark Policies Notation and Basic Assumptionsmentioning

confidence: 99%

“…In the literature, it is common to use the height of an aquifer measured in meters instead of the stock size measured in volume in the resource restriction (see, e.g., Koundouri et al, 2017). Within our model the stock size can only be used as an approximation for the height if there exists a one to one relation between the changes in the two variables but many hydrological studies show that this condition is not fulfilled (see, e. g., Koila, Yonli, Soro, Dara, & Vouslamoz, 2018).…”

Section: Notation and Basic Assumptionsmentioning

confidence: 99%

“…By using the terminology from Poudel and Paudel (2018), we only consider one kind of exogenous uncertainty represented by uncertain arrival date of a drought. One reason for only 5 See Koundouri, Roseta-Palma, and Englezos (2017) operating with one kind of uncertainty is that we allow for a reasonable general and nonlinear objective function. However, in a model extension in Appendix D (briefly discussed in Sections 3.2 and 6) we discuss the implications of assuming two kinds of exogenous uncertainties that arise simultaneously represented by unknown arrival date and duration of drought.…”

Section: Introductionmentioning

confidence: 99%

“…See Koundouri, Roseta‐Palma, and Englezos () for an overview of recent developments in groundwater economics.…”

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confidence: 99%

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Groundwater management: Waiting for a drought*

Amundsen

Jensen

2019

Natural Resource Modeling

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In this article we present a stylized model for optimal management of an unconfined groundwater resource when the threat of drought exists. The drought is modeled as a stochastic event that hits at an uncertain date and two benchmark management policies are investigated: (a) A policy of optimal dynamic management ignoring the threat of drought; and (b) an economically optimal policy that accounts for the threat of a drought. We show that the optimal predrought steady‐state equilibrium stock size of groundwater under policy b is larger than that under policy (a) Furthermore, we show that an increase in the probability of a drought gives rise to two counteracting effects: One in the direction of a larger predrought steady‐state equilibrium stock size (a recovery effect) and one in the direction of a lower predrought steady‐state equilibrium stock (an extinction effect). We find that the recovery effect dominates the extinction effect. Recommendations for Resource Managers: We analyze two groundwater extraction policies that can be used when a threat of drought exists: (a) Dynamic optimal management ignoring the threat of drought; and (b) dynamic optimal management taking the threat of drought into account. We show that the predrought steady‐state equilibrium stock size of water should be larger under the policy (b) than under policy (a). This conclusion has three implications for resource managers: Current groundwater management should take future extraction possibilities into account. A resource manager ought to take the threat of drought into account in groundwater management. A buffer stock of water should be built‐up before the drought to be drawn upon during the event.

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The Economics of Groundwater Governance Institutions across the Globe

Edwards¹,

Guilfoos²

2020

Applied Eco Perspectives Pol

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This article provides an economic framework for understanding the emergence and purpose of groundwater governance across the globe. We examine ten basins located on six continents via an integrated assessment along three dimensions: characteristics of the groundwater resource; externality problems; and governance institutions. Groundwater governance addresses local externalities to balance the benefits of reducing common pool losses with the costs of doing so. While broad, basin‐wide solutions to open access pumping are limited, spatially localized externality problems raise the benefits of management actions, allowing for the implementation of more stringent pumping controls in certain areas.

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Out of Sight, Not Out of Mind: Developments in Economic Models of Groundwater Management

Abstract: ; financial support from GLOBAQUA research project (www.globaqua-project.eu/en/) European Union's Seventh Programme for research, technological development and demonstration under grant agreement No 603629.

Cited by 22 publications

References 97 publications

The Shadow Price of Irrigation Water in Major Groundwater‐Depleting Countries

The Shadow Price of Irrigation Water in Major Groundwater‐Depleting Countries

Groundwater management: Waiting for a drought*

The Economics of Groundwater Governance Institutions across the Globe

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