Dynamic Adaptation to Resource Scarcity and Backstop Availability: Theory and Application to Groundwater

19 Pages Posted: 3 Jul 2006

See all articles by Phoebe Koundouri

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Christina Christou

University of Piraeus - Department of Banking and Financial Management

Abstract

In this paper we analyse the optimal management of a renewable resource (groundwater) with stock-dependent extraction cost and a backstop substitute, facing two-sector linear demands. Application to the Kiti region in Cyprus demonstrates the model's performance and is used to test for the difference between optimal and myopic behaviour. It is found that the presence of a backstop resource diminishes the importance of optimal dynamic behaviour, whereas in the absence of backstop the optimal control solution yields a value for social welfare significantly larger than the myopic policy.

Suggested Citation

Koundouri, Phoebe and Christou, Christina, Dynamic Adaptation to Resource Scarcity and Backstop Availability: Theory and Application to Groundwater. Australian Journal of Agricultural and Resource Economics, Vol. 50, No. 2, pp. 227-245, June 2006, Available at SSRN: https://ssrn.com/abstract=913490 or http://dx.doi.org/10.1111/j.1467-8489.2006.00333.x

Phoebe Koundouri (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

Christina Christou

University of Piraeus - Department of Banking and Financial Management

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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