Managing groundwater with spatially variable externalities
نویسندگان
چکیده
Despite modeling groundwater as a common property resource, existing economic analyses find that the quantitative difference between competitive and socially optimal groundwater management outcomes is negligible. Thus, in contrast to the public perception of groundwater overextraction and resource depletion, there appears to be no economic rationale for groundwater management. In this paper, we develop a dynamic, spatially explicit model of groundwater extraction by multiple users. We show that it is precisely because groundwater is not a common property resource that there are significant welfare gains from policy interventions. The explanation of this apparent paradox is that in reality, the externalities caused by groundwater pumping are extremely concentrated in space.
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