FEEM working papers "Note di lavoro" series
2011 .028

Optimal Mechanisms for Heterogeneous Multi-cell Aquifers

Authors: Stergios Athanassoglou, Glenn Sheriff, Tobias Siegfried, Woonghee Tim Huh
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Common Property Resource, Differential Games, Groundwater Extraction, Imperfect Monitoring, Markov Perfect Equilibrium
JEL n.: C6, D0
JEL: Environmental and Resource Economics, Vol. 52, N. 2
Pages: pp 265-291
Date: 06/2012


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 homogenous 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.


Suggested citation: Stergios Athanassoglou, Glenn Sheriff, Tobias Siegfried, Woonghee Tim Huh, Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers, Environ Resource Econ (2012) 52:265–291, http://dx.doi.org/10.1007/s10640-011-9528-0


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