Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers

Stergios Athanassoglou, Glenn Sheriff, Tobias Siegfried, Woonghee Tim Huh

Research output: Contribution to journalArticle

14 Scopus citations

Abstract

Standard economic models of groundwater management impose restrictive assumptions regarding perfect transmissivity (i. e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, observability of individual extraction rates, and/or homogeneous agents. In this article, we derive regulatory mechanisms for inducing the socially optimal extraction path in Markov perfect equilibrium for aquifers in which these assumptions do not hold. In spite of the complexity of the underlying system, we identify an interesting case in which a simple linear mechanism achieves the social optimum. To illustrate potential problems that can arise by erroneously imposing simplifying assumptions, we conduct a simulation based on data from the Indian state of Andhra Pradesh.

Original languageEnglish (US)
Pages (from-to)265-291
Number of pages27
JournalEnvironmental and Resource Economics
Volume52
Issue number2
DOIs
StatePublished - Jun 2012

Keywords

  • Common property resource
  • Differential games
  • Groundwater extraction
  • Imperfect monitoring
  • Markov perfect equilibrium

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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