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Optimal Groundwater Extraction under Uncertainty and a Spatial Stock Externality
Nathaniel H Merrill1, Todd Guilfoos2
1Environmental economist at the U.S. Environmental Protection Agency, Atlantic Ecology Division.
American Journal of Agricultural Economics
|January 16, 2018
Summary
This study models groundwater management, revealing that spatial aquifer depletion significantly impacts welfare gains (2.9-3.01%). Including rainfall stochasticity offers only minor increases to these gains.
Area of Science:
- Environmental Economics
- Hydrology
- Resource Management
Background:
- Groundwater management models often simplify aquifer dynamics, neglecting spatial externalities and rainfall variability.
- Traditional models may overestimate welfare gains by assuming complete resource exhaustion.
Purpose of the Study:
- To develop and apply a groundwater management model incorporating stochasticity and spatial stock externalities.
- To estimate welfare gains from optimal groundwater management under uncertainty.
- To compare welfare gains with and without spatial depletion and rainfall stochasticity.
Main Methods:
- Developed a dynamic programming model for groundwater management.
- Incorporated stochastic rainfall processes (independent and identically distributed, and Markov chain).
- Applied the model to a section of the Ogallala Aquifer in Kansas.
Main Results:
- Spatial depletion of the aquifer significantly impacts welfare gains, estimated between 2.9% and 3.01% for the Ogallala Aquifer.
- These welfare gains due to spatial depletion are larger than previously reported for the region.
- The inclusion of rainfall stochasticity resulted in only a slight increase in welfare gains.
Conclusions:
- Spatial stock externalities are critical for accurately estimating welfare gains in groundwater management.
- The developed model provides a more realistic representation of depletable natural resources compared to traditional single-cell models.
- Optimal management strategies should account for spatial aquifer dynamics to maximize welfare benefits.
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