Economic and spatial modelling of groundwater extraction

Excerpt

This essay examines the underlying spatial assumptions prevalent in economic models of groundwater extraction. Due to the common pool nature (see Glossary at the end) of aquifers, economists have long claimed that when groundwater is extracted under competition—in the absence of regulations in terms of the location and rates of extraction—a series of externalities prevent the efficient exploitation of the resource (Provencher and Burt 1994). Specifically, extraction of an additional unit of groundwater reduces the total stock, which creates two consequences. First, a lower stock reduces future availability and extraction alternatives; thus, a stock externality arises whenever the stock constraint is binding. Second, a pumping cost externality arises because a lower stock increases the depth to groundwater and, consequently, the extraction costs of other users. Other types of externalities including third-party effects in the form of groundwater quality deterioration and greater income risk may also arise with extraction. Given the spatial-dynamic nature of groundwater flow, the extent of all these externalities depends on the quantity, location and time of extraction and on the type of strategic behaviour under competition (Negri 1989). …