Handbook of Water Economics
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Handbook of Water Economics

Edited by Ariel Dinar and Kurt Schwabe

Water scarcity, whether in the quality or quantity dimension, afflicts most countries. Decisions on water management and allocation over time, space, and among uses and users involve economic considerations. This Handbook assembles research that represents recent thinking and applications in water economics. The book chapters are written by leading scholars in the field who address issues related to its use, management, and value. The topics cover analytical methods, sectoral and intersectoral water issues, and issues associated with different sources of water.
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Chapter 3: Sustainability economics of groundwater usage and management

Keith C. Knapp and Bradley Franklin


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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