Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers

43 Pages Posted: 6 Apr 2011

See all articles by Stergios Athanassoglou

Stergios Athanassoglou

Fondazione Eni Enrico Mattei (FEEM) and Euro-Mediterranean Center for Climate Change

Glenn David Sheriff

National Center for Environmental Economics, US EPA

Tobias Siegfried

Columbia University

Woonghee Tim Huh

University of British Columbia

Date Written: April 4, 2011

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 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.

Keywords: Common Property Resource, Differential Games, Groundwater Extraction, Imperfect Monitoring, Markov Perfect Equilibrium

JEL Classification: C6, D0

Suggested Citation

Athanassoglou, Stergios and Sheriff, Glenn David and Siegfried, Tobias and Huh, Woonghee Tim, Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers (April 4, 2011). FEEM Working Paper No. 28.2011. Available at SSRN: https://ssrn.com/abstract=1802415 or http://dx.doi.org/10.2139/ssrn.1802415

Stergios Athanassoglou

Fondazione Eni Enrico Mattei (FEEM) and Euro-Mediterranean Center for Climate Change ( email )

C.so Magenta 63
Milano, 20123
Italy

Glenn David Sheriff (Contact Author)

National Center for Environmental Economics, US EPA ( email )

Washington, DC 20460
United States

Tobias Siegfried

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Woonghee Tim Huh

University of British Columbia ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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