Groundwater Management When Water Quality is Endogenous

Abstract

The value of water as a resource depends as much on the quantity avail-able as on its quality. Economic literature has covered both aspects extensively but independently. This paper is an attempt to bring quality considerations into a deterministic model of resource management. It would be natural to suppose that optimal management yields a larger aquifer of better quality than what private agents achieve. The paper shows that this is not necessarily true: intervention may lower quantity while improving quality or vice-versa. It is also shown that, in spite of the external costs associated with contaminant discharges, the stationary level of dis-charges chosen by the users of the groundwater may be higher or lower than the efficient one, as long as steady state water quality is higher in the efficient solution. Although the model contains a number of unrealistic simplifying assumptions (equal agents, constant recharge and surface water, perfect conductivity), they do not undermine the purpose of this paper, which is to provide a framework in which quantity and quality might be modelled together.