Current Issues in the Economics of Groundwater Resource Management

Abstract

Abstract. The issue of groundwater management remains a practical concern in many regions throughout the world, while water managers continue to grapple with the question of how to manage this resource. In this article, we attempt to bring the most advanced and appropriate tools to bear on the issue of resource allocation involving groundwater. Our objective is to demonstrate the state of the art in the literature on ways to think about this complex resource and to deal with the important economic issues emanating from its complexity. We present the conceptual framework within which economists examine the elements interacting in the management of groundwater resources, indicate why the role of the market is limited with respect to the price of this very complex resource, and point to the mechanisms that can pull competitive groundwater price and quality-graded quantity of groundwater in line with their equilibrium levels. In particular, we critically review economic models of groundwater use, examine the potential for groundwater management, discuss the difficulties encountered in the estimation of the relevant control variables of such models, and identify the advantages and limitations of the instruments devised for the efficient use (allocation) of this resource. Finally, we argue that devised regulatory schemes usually ignore the information and knowledge needed for their implementation, and we suggest a core of conditions necessary for successful groundwater management reforms.

Combined use of groundwater simulation and multi-criteria analysis within a spatial decision-making framework for optimal allocation of irrigation water

“…Therefore, the optimization model can act as a response model to the potentially imposed quotas, in order to limit the negative economic impacts on farmers' income. The reasons for selecting this "command and control" policy for groundwater management, instead of applying other economic instruments, also suitable for water conservation, like administering a water pricing policy or creating a water market, besides its wide employability (Koundouri, 2004), is that it can assist in: (a) achieving some moderate objectives of water savings, and (b) avoiding significant economic burden on farmers, as it inflicts lower income losses. Besides, it is a common fact that the elasticity of irrigation water demand in Mediterranean agriculture is very low, requiring thus high water prices (higher income losses) for rather limited water savings.…”

“…As the main conservation policy examined is an economic one (i.e. a water use quota), the study adds also to the rapidly expanding scientific area of irrigation water economics (Arcas et al, 2010), by focusing on groundwater management, a recently recognized important and interesting area for the application of the tools of economic theory and econometrics (Koundouri, 2004). Indeed, relevant current research is steadily looking, in a very detailed way, at various economic consequences that groundwater conservation policy options produce, either upon the individuals or the society as a whole, and at multiple spatial scales (Blanco-Gutiérrez et al, 2011).…”

“…To conserve as much as possible of this valuable resource in the study area, the application of a standard instrument for irrigation water management is examined. This is a system of water use quotas, which is likely the most widely employed regulatory instrument in similar cases (Koundouri, 2004). The multi-criteria approach that is implemented enables the identification of the best alternatives in practicing this policy instrument by taking into account realistic conflicting and competing criteria, like economic, social and environmental type ones, while, at the same time, putting a particular emphasis upon the spatial allocation of quotas.…”

Cooperative institutions for sustainable common pool resource management: Application to groundwater

“…Such negative effects are common in major regions of North Africa, the Middle East, South and central Asia, North China, North America, and Australia [Konikow and Kendy, 2005]. While the value of this resource and the dramatic economic benefits are known, the complexity in regulating and monitoring groundwater withdrawals have made sustainable management of this resource very challenging, making groundwater one of the most studied CPRs in the literature [Blomquist, 1992;Burke et al, 1999;Chebaane et al, 2004;Gardner et al, 1997;Gisser, 1980;Koundouri, 2004;Loaiciga, 2004;Provencher and Burt, 1993;Ross and MartinezSantos, 2009;Wegerich, 2006;Worthington et al, 1985]. The groundwater exploitation problem introduced by Madani and Dinar [2012] is presented briefly for application of cooperative CPR management institutions and a comparison of the obtained results under the cooperative management institutions with those obtained under the noncooperative and exogenous groundwater management institutions by Dinar [2011, 2012].…”

The economics of optimal urban groundwater management in southwestern USA

“…Groundwater serves as the primary water supply for more than 80% of water systems in the United States (US Environmental Protection Agency 1997) and, for many more, it is a buffer in conjunctive use resource strategies (Gibbons 1986;Koundouri 2004a;Olmstead 2010). However, it faces intensifying stress due to changes in climate, demographics and economics.…”