Competition versus coopertion in groundwater extraction: A stochastic framework with heteregoneous agents

Laukkanen, Marita and Koundouri, Phoebe (2006): Competition versus coopertion in groundwater extraction: A stochastic framework with heteregoneous agents. Published in: Water Management in Arid and Semi-Arid Regions: Interdisciplinary Perspectives (2006)

Abstract

We analyze a game with N farmers that extract groundwater from a common aquifer of small storage capacity. Our aim is to compare the socially optimal, myopic and feedback extraction strategies, the latter arising from competitive interaction between extracting agents. Our extension to existing literature is that we consider heterogeneous farmers, facing uncertainty deriving from stochastic rainfall. The farmers differ in terms of their choice of irrigation technology, which results in different farmer-speci�c impact on the aquifer recharge rate. We illustrate the implications of the di¤erent strategies on extraction rates, groundwater table levels and welfare attained, via simulations based on data from the Kiti aquifer in Cyprus.

• Item Type: MPRA Paper
• Language: English
• Keywords: common property resources; groundwater management; dif- ference games; strategic externality
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q25 - Water; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation

References

[1] Allen, R. C., and Gisser, M., 1984. Competition versus optimal control in groundwater pumping when demand is nonlinear. Water Resources Research,20, 752-6.

[2] Benveniste, L. and Scheinkman, J, (1979), .On the Differentiability of the Value Function in Dynamic Models of Economies., Econometrica, 47, 727-732.

[3] Burt, O. R., (1964), .Optimal resource use over time with an application to groundwater., Management Science, 11, 80-93.

[4] Burt, O. R., (1967), .Groundwater management under quadratic irrigation function., Water Resource Research, 3,673-682.

[5] Burt, O. R., 1970. Groundwater storage control under institutional restrictions.Water Resources Research, 6, 1540-1548.

[6] D.Agostino, R. B., A. Balanger and R. B. D.Agostino, Jr., (1990),.A suggestion for using powerful and informative tests of normality.,The American Statistician 44 (4), 316-321.

[7] Dixon, L. S., (1989), Models of groundwater extraction with an examination of agricultural water use in Kern County, California, Unpublished Ph.D. dissertation, University of California.

[8] Dockner, E. J., and Long, N., (1993), .International pollution control: cooperative versus noncooperative strategies.,Journal of Environmental Economics and Management, 24, 13-29.

[9] Feinerman, E., and Knapp, K. C., 1983. Bene.ts from groundwater management: magnitude, sensitivity, and distribution.American Journal of Agricultural Economics, 65, 703-10.

[10] Fisher, A. C., and Rubio, S. J., (1997), .Adjusting to climate change: Implications of increased variability and asymmetric adjustment costs for investment in water reserves., Journal of Environmental Economics and anagement, 34,207-227.

[11] Gisser, M., and Mercado, A., 1973. Economic aspects of ground water resources and replacement .ows in semiarid agricultural areas.American Journal of Agricultural Economics, 55, 461-466.

[12] Gisser, M., and Sánchez, D. A., (1980), .Competition versus optimal control in groundwater pumping., Water Resources Research, 31, 638-642.

[13] Judd, K. (1998), Numerical Methods in Economics, Cambride, MA:MIT Press.

[14] Judd, K. (1992), .Projection Methods for Solving Aggregate Growth Models.,Journal of Economic Theory, 58, 410-452.

[15] Judd, K. (1994), .Approximation, Perturbation and Projection Methods in Economic Analysis., in Amman, H., Kendrick, D.A. and J. Rust (eds),Handbook of Computational Economics, Vol. 1, New York: North Holland,509-586.

[16] Kim, C. S., Moore, M. R. and Hanchar, J. J., 1989. A dynamic model of adaptation to resource depletion: theory and an application to groundwater mining. Journal of Environmental Economics and Management, 17, 66-82.

[17] Knapp, K. C., and Olson, L., J., (1995), .The economics of conjunctive groundwater management with stochastic surface supplies.,Journal of Environmental Economics and Management, 28, 340-356.

[18] Koundouri, P., (2000), Three Approaches to measuring natural resource scarcity: Theory and Application to Groundwater, PhD Thesis, Faculty of Economics and Politics, University of Cambridge.

[19] Koundouri, P., and Christou, C. (2000). Endogenous Dynamic Adaptation to Resource Scarcity with Backstop Availability. Mimeo, University of Cambridge,UK.

[20] Llop, A. and Howitt, R., 1983. On the social cost of groundwater management:the role of hydrologic and economic parameters on policy actions. Unpublished Manuscript. University of California, Davis.

[21] Miranda, M. and Fackler, P. (2002), Applied Computational Economics and Finance,Cambride, MA:MIT Press.

[22] Negri, D. H., (1989), .The common property aquifer as a differential game.,Water Resources Research, 25, 1-15.

[23] Nieswiadomy, M., 1985. The demand for irrigation water in the High Plains of Texas, 1957-1980. American Journal of Agricultural Economics, 67(3), 619-626.

[24] Provencher, B., (1993), .A private property rights regime to replenish a groundwater aquifer., Land Economics, 69 (4), 325-40.

[25] Provencher, B. and Burt, O., (1993), .The externalities associated with the common property exploitation of groundwater.,Journal of Environmental Economics and Management, 24,139-58.

[26] Provencher, B., and Burt, O., 1994. A private property rights regime for the commons: the case for groundwater. American Journal of Agricultural Economics. 875-888.

[27] Provencher, B., (1998), .Issues in the conjunctive use of surface water and groundwater., In Daniel W. Bromley (ed), The Handbook of Environmental Economics.

[28] Royston, P., (1991), .Tests for departure from normality.,Stata Technical Bulletin, 2, 16-17. Reprinted in Stata Technical Bulletin Reprints, 1, 101-104.

[29] Royston, P., (1992), .Approximating the Shapiro-Wilk W-test for non-normality., Statistics and Computing, 2, 117-119.

[30] Rubio, S.J., and Casino, B. (2001), .Competitive versus e¢ cient extraction of a common property resource: The groundwater case.,Journal of Economic Dynamics and Control, 25, 1117-1137.

[31] Rubio, S.J., and Castro, J. P. (2000), .Long run groundwater resource under uncertainty., Investigaciones Economicas, 20, 71-88.

[32] Tsur, Y. and Graham-Tomasi, T., (1991), .The buffer value of groundwater with stochastic surface water supplies.,Journal of Environmental Economics and Management, 21, 201-24.

[33] Tsur, Y., and Zemel, A. (1995), .Uncertainty and ir- reversibility in groundwater resource management., Journal of Environmental Economics and Management, 29, 149-161.

[34] Tsur, Y., and Zemel, A., (2001), .R&D policies for desalination technologies.,Agricultural Economics, 24 (1), 73-85.

[35] Wirl, Franz (1994), .Global warming and carbon taxes: Dynamic and strategic interactions between energy consumers and producers.,Journal of Policy Modelling, 16, 577-596.

[36] Wirl, F. and Dockner, E., (1995), .Leviathan governments and carbon taxes:Costs and potential bene.ts., European Economic Review, 39, 1215-1236.

[37] Tsutsui, S. and Mino, K., (1990), .Nonlinear strategies in dynamic duopolistic competition with sticky prices., Journal of Economic Theory, 52, 136-61.

[38] Zeitouni, N., (2004), .Optimal extraction from a renewable groundwater aquifer with stochastic recharge., Water Resource Research (forthcoming).