Edited by Ariel Dinar and Kurt Schwabe
Chapter 3: Sustainability economics of groundwater usage and management
Groundwater economics has been extensively studied in the literature. Pioneering work-by Burt (1964) and Brown and Deacon (1972) identified present-value-(PV-)optimal-strategies, while Gisser and Sánchez (1980) found that management benefits are not very-large. Since then the literature has expanded in a number of directions, including game-theory (Negri, 1989), Provencher and Burt (1993), conjunctive surface water use (Knapp-and Olson, 1995), and spatial models (Noel et al., 1980), Knapp and Feinerman (1985),-Zeitouni and Dinar (1997) and Reinelt (2005). Krulce et al. (1997) develop a model of-a groundwater lens in a marine environment, while Esteban and Dinar (2013) consider-ecosystem damages consequent to groundwater usage. Groundwater quality economics-include Conrad and Olson (1992), Zeitouni (1991), Roseta-Palma (2002), Knapp and-Baerenklau (2006) and Reinelt (2005).-This chapter extends the literature to consider a formalized model of groundwater-sustainability. Following the capital resource literature (e.g. Mourmouras, 1991;-Asheim et al., 2001), sustainability is defined here as intertemporal efficiency (Pareto-optimality) and intergenerational equity specified as non-declining utility over time.-Standard groundwater models cannot be used to assess sustainability, since these-models report only income streams and the physical variables, while sustainability-is measured over consumption. Accordingly, this problem is studied by extending a-standard groundwater model to include household utility and saving/dissaving from a-financial asset, which is characterized analytically and numerically for several behavioral-regimes.
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