Skip to main content

Cooperative Management of Groundwater Resources in the Presence of Environmental Externalities

Abstract

This paper investigates how cooperation among users can achieve a better management of groundwater in the presence of environmental externalities. Cooperation allows users to internalize the damages caused by their activities and reduce extractions. The paper develops a game theoretical framework to assess the value of cooperation in an aquifer that is divided into three sub-aquifers that are being overly exploited. Two types of externalities are modeled: first, water extractions in each sub-aquifer impact water levels in neighboring sub-aquifers (extraction externality). Second, the three sub-aquifers are also connected to an ecosystem and thus decisions in each sub-aquifer affect the health of the ecosystem (environmental externality). A cooperative game theory model is applied. The model empirically shows how the uncontrolled extractions in each sub-aquifer affects neighboring groundwater users but also cause severe impacts to the linked ecosystem. The model is tested empirically in one of the most important aquifers in Spain, the Eastern la Mancha aquifer. The results illustrate how both extraction and environmental externalities interact in affecting the likelihood of cooperation among the users. The paper estimates the value of cooperation and its stability with and without the environmental externality.

This is a preview of subscription content, access via your institution.

References

  • Anderson G, Opaluch J, Sullivan WM (1985) Nonpoint agricultural pollution: pesticide contamination of groundwater supplies. Am J Agric Econ 67: 1238–1246

    Article  Google Scholar 

  • Balmford A, Bruner A, Cooper P, Costanza R, Farber S, Green RE, Jerkins M, Jefferiss P, Jessamy V, Madden J, Munro K, Myers N, Naeem S, Paavola J, Rayment M, Rosendo S, Roughgarden J, Trumper K, Turner RK (2002) Economic reasons for conserving wild nature. Science 297: 950–953

    Article  Google Scholar 

  • Barbier EB (1993) Valuing tropical wetland benefits: economic methodologies and applications. Geogr J Part I 59: 22–32

    Article  Google Scholar 

  • Barbier EB (2000) Valuing the environment as input: review of applications to mangrove-fishery linkages. Ecol Econ 35: 47–61

    Article  Google Scholar 

  • Barbier EB, Acreman M, Knowler D (1997) Economic valuation of wetlands: a guide for policy makers and planners. Ramsar Convention Bureau, Gland, Switzerland

  • Bateman I, Willis K, Garrod G (1994) Consistency between contingent valuation estimates: a comparison of two studies of UK National Parks. Reg Stud 28(5): 457–474

    Article  Google Scholar 

  • Bendor T (2009) A dynamic analysis of the wetland mitigation process and its effects on no net loss policy. Landsc Urban Plan 89: 17–27

    Article  Google Scholar 

  • Brander LM, Florax R, Vermaat JE (2006) The empirics of wetlands valuation: a comprehensive summary and a meta-analysis of the literature. Environ Resour Econ 33: 223–250

    Article  Google Scholar 

  • Brouwer R, Langford IH, Bateman IJ, Tuner RK (1999) A meta-analysis of wetland contingent valuation studies. Reg Environ Change 1(1): 47–57

    Article  Google Scholar 

  • Castaño S, Sanz D, Gómez-Alday JJ (2010) Methodology for quantifying groundwater abstractions for agriculture via remote sensing and GIS. Water Resour Manage 24: 795–814

    Article  Google Scholar 

  • Coase R (1960) The problem of social cost. J Law Econ 3: 1–44

    Article  Google Scholar 

  • Costanza R, Farber SC, Maxwell J (1989) Valuing and management of wetland ecosystems. Ecol Econ 1: 335–361

    Article  Google Scholar 

  • De Groot R, Stuip M, Finlayson M, Davidson N (2006) Valuing wetlands: guiance for valuing the benefits derived from wetland ecosystem services. Gland, Switzerland: Ramsar Technical Report No. 3. CBD Technical Series No. 27

  • Dinar A (1994) Impact of energy costs and water resource availability on agriculture and groundwater quality in California. Resour Energy Econ 16: 47–66

    Article  Google Scholar 

  • Dinar A (2001) Scale and equity in water resources development: a nash bargaining model. Nat Resour Model 14(4): 477–494

    Article  Google Scholar 

  • Dinar A, Howitt RE (1997) Mechanisms for allocation of environmental cost: empirical tests of acceptability and stability. J Environ Manag 49: 183–203

    Article  Google Scholar 

  • Dinar A, Wolf A (1997) Economic and political considerations in regional cooperation models. Agric Resour Econ Rev 26(1): 7–22

    Google Scholar 

  • Dinar A, Xepapadeas A (1998) Regulating water quantity and quality in irrigated agriculture. J Environ Econ Manag 54: 273–290

    Google Scholar 

  • Dinar A, Yaron D, Kannai Y (1986) Sharing regional cooperative gains from reusing effluent for irrigation. Water Resour Res 22(3): 339–344

    Article  Google Scholar 

  • Dinar A, Dinar S, McCaffrey S, McKinney D (2007) Bridges over water: understanding transboundary water conflicts, negotiation and cooperation. World Scientific Publishers, Singapore

    Book  Google Scholar 

  • Dufournaud CM, Harrington JJ (1990) Temporal and spatial distribution of benefits and costs in river-basin schemes: a cooperative game approach. Environ Plan 22: 615–628

    Article  Google Scholar 

  • Esteban E, Albiac J (2011) Groundwater and ecosystems damages: questioning the Gisser-Sánchez effect. Ecol Econ 70: 2062–2069

    Article  Google Scholar 

  • Gardner R, Moore M, Walker J (1997) Governing a groundwater commons: a strategic and laboratory analysis of western water law. Econ Inq 35: 218–234

    Article  Google Scholar 

  • Gordon HS (1954) The economic theory of a common-pool property resource: the fishery. J Polit Econ 62: 124–142

    Article  Google Scholar 

  • Gren IM (1995) The value of investing in wetlands for nitrogen abatement. Eur Rev Agric Econ 22: 157–172

    Article  Google Scholar 

  • Gura EY, Maschler MB (2008) Insights into game theory. An alternative mathematical experience. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Gürlük S, Rehber E (2008) A travel cost study to estimate recreational value of a bird refuge at Lake Manyas, Turkey. J Environ Manag 88: 1350–1360

    Article  Google Scholar 

  • Hanley N, Craig S (1991) Wilderness development decisions and the Krutilla-Fisher model: the case of the Scotland flow country. Ecol Econ 4(2): 145–164

    Article  Google Scholar 

  • Harsanyi JC (1959) A bargaining model for the cooperative n-person game. In: Tucker AW, Luce RD (eds) Contributions to the theory of games. Princeton University Press, Princeton, pp 1–4

  • Heimlich RE, Wiebe KD, Claassen R, Gadsby D, House RM (1998) Wetlands and agriculture. Private interests and public benefits. Agricultural Economic Report, no 765. United Sates Department of Agriculture (USDA)

  • Howitt RE, Msangi S, Reynaud A, Knapp KC (2005) Estimating inter-temporal preferences in natural resource management. Am J Agric Econ 87: 969–983

    Article  Google Scholar 

  • Judez L, de Andres R, Perez C, Urzainqui E, Ibañez M (2000) Influence of bid and subsample vectors on the welfare measure estimate in dichotomous choice contingent valuation: evidence from a case-study. J Environ Manag 60: 253–265

    Article  Google Scholar 

  • Judez L, Ibañez M, Perez C (2002) Valoración del use recreativo de un humedal español. Tests y comparación de diferentes métodos de valoración. Estudios Agrosociales y Pesqueros 192: 83–104

    Google Scholar 

  • Leschine TM, Wellman KF, Green TH (1997) The economic value of wetlands: Wetlands’ role in floodprotection in Western Washington. Ecology Publication no. 97-100. Washington State Department of Ecology

  • Llamas R (1998) Conflicts between wetland conservation and groundwater exploitation: two case histories in Spain. Environ Geol Water S11: 241–251

    Google Scholar 

  • Locáiciga HA (2002) Sustainable ground-water exploitation. Int Geol Rev 44: 1115–1121

    Article  Google Scholar 

  • Locáiciga HA (2004) A game-theoretic approach to ground-water extraction. J Hydrol 297: 22–33

    Article  Google Scholar 

  • Loehman E (1995) Cooperative solutions for problems of water supply. In: Dinar A, Loehman E (eds) Water quantity/quality management and conflict resolution: institutions, processes, and economic analysis. Greenwood Publishing Group, Westport

  • Loehman E, Orlando J, Tschirhart J, Whinston A (1979) Cost allocation for a regional wastewater treatment system. Water Resour Res 15: 193–202

    Article  Google Scholar 

  • Madani K, Dinar A (2011) Cooperative institutions for sustainable management of common-pool resources. Water Science and Policy Center Working Paper 02-0311. Available at: http://wspc.ucr.edu/WSPC_WP_02_0311%20coop%20inst%20com%20pool.pdf

  • Martin de Santa Olalla F, Dominguez A, Ortega F, Artigao A, Fabeiro C (2007) Bayesian networks in planning a large aquifer in Eastern Mancha, Spain. Environ Modell Softw 22: 1089–1100

    Article  Google Scholar 

  • Martínez-Santos P, de Stefano L, Llamas R, Martínez-Alfaro PE (2008) Wetland restoration in the Mancha Occidental aquifer, Spain: a critical perspective on water, agricultural, and environmental policies. Restor Ecol 16: 511–521

    Article  Google Scholar 

  • Milliman JW (1956) Commonality, the price system, and use of water supplies. South Econ J 22: 426–437

    Article  Google Scholar 

  • Ming J, Xian-guo L, Lin-shu X, Li-juan C, Shouzheng T (2006) “Flood mitigation benfit of wetland soil— a case study in Momoge National Reserve in China”. Ecol Econ 61: 217–223

    Article  Google Scholar 

  • Nash JF Jr (1953) Two-person cooperative games. Econometrica 21: 128–140

    Article  Google Scholar 

  • Negri DH (1989) The common property aquifer as a differential game. Water Resour Res 25: 9–15

    Article  Google Scholar 

  • Negri DH (1990) Stragedy of the commons. Nat Resour Model 4: 521–537

    Google Scholar 

  • Ostrom E (1990) Governing the commons: the evolution of institutions for collective action. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Ostrom E (2010) Beyond markets and states: polycentric governance of complex economic systems. Am Econ Rev 100: 641–672

    Article  Google Scholar 

  • Pigou A (1920) The economics of welfare. Macmillan, New York

    Google Scholar 

  • Polasky S, Tarui N, Ellis GM, Mason CF (2006) Cooperation in the commons. Econ Theor 29: 71–88

    Article  Google Scholar 

  • Pongkijvorasina S, Roumasset J, KaeoDuartec T, Burnett K (2010) Renewable resource management with stock externalities: coastal aquifers and submarine groundwater discharge. Resour Energy Econ 32(3): 277–291

    Article  Google Scholar 

  • Provencher B, Burt O (1993) The externalities associated with the common property exploitation of groundwater. J Environ Econ Manag 24: 139–158

    Article  Google Scholar 

  • Roseta-Palma C (2002) Groundwater management and endogenous water quality. J Environ Econ Manag 44: 93–105

    Article  Google Scholar 

  • Roumasset JA, Wada CA (2010) Optimal and sustainable groundwater extraction. Sustainability 2: 2676–2685

    Article  Google Scholar 

  • Rubio JS, Casino B (2001) Competitive versus efficient extraction of a common property resource: the groundwater case. J Econ Dyn Control 25: 1117–1137

    Article  Google Scholar 

  • Ruitenbeek HJ (1994) Modelling economy-ecology linkages in mangroves: economic evidence for promoting conservation in Bintuni Bay. Indonesia. Ecol Econ 10: 233–247

    Article  Google Scholar 

  • Salazar R, Szidarovszky F, Coppola E, Rojano A (2007) Application of game theory for a groundwater conflict in Mexico. J Environ Manag 84: 560–571

    Article  Google Scholar 

  • Sanz D, Gómez-Alday JJ, Castaño S, Moratalla A, de las Heras J, Martínez-Alfaro PE (2009) Hydrostratigraphic framework and hydrogeolocigalbehaviour of the Mancha oriental system (SE Spain). Hydrogeol J 17: 1375–1391

    Article  Google Scholar 

  • Sanz D, Castaño S, Cassiraga E, Sahuquillo A, Gómez-Alday JJ, Peña S, Calera A (2011) Modeling aquifer-river interactions under the influence of groundwater abstractions in the Mancha oriental system (SE Spain). Hydrogeol J 19: 475–487

    Article  Google Scholar 

  • Seidl AF, Moraes AS (2000) Global valuation of ecosystem services: application to the Pantanal da Nhecolandia, Brazil. Ecol Econ 33(1): 1–6

    Article  Google Scholar 

  • Shapley LS (1953) A value for n-person games. In: Kuhn HW, Tucker AW (eds) Contributions to the theory of games, no. II. Annals of Math. Studies, vol 28. Princeton University Press, Princeton, pp 307–317

  • Shapley LS, Shubik M (1954) A method for evaluating the distribution of power in a committee system. Am Polit Sci Rev 48: 787–792

    Article  Google Scholar 

  • Sobuhi M, Mojarad E (2010) Application of game theory for groundwater resources management of Atrak. J Econ Agric Dev 24(1): 1–12

    Google Scholar 

  • Tarui N, Mason CF, Polasky S, Ellis G (2008) Cooperation in the commons with unobservable actions. J Environ Econ Manag 55: 37–51

    Article  Google Scholar 

  • Tsur Y (1990) Stabilization role of groundwater when surface water supplies are uncertain: the implications for groundwater development. Water Resour Res 26: 811–818

    Google Scholar 

  • Tsur Y, Zemel A (1995) Uncertainty and irreversibility in groundwater resource management. J Environ Econ Manag 29: 149–161

    Article  Google Scholar 

  • Wattage P, Mardle S (2008) Total economic value of wetland conservation in Sri Lanka identifying use and non-use values. Wetl Ecol Manag 16: 359–369

    Article  Google Scholar 

  • White AT, Ross M, Flores M (2000) Benefits and costs of coral reef and wetland management, Olango Island, Philippines. In: Cesar HSJ (ed) Collected essays on the economics of coral reefs. Cordio, Sweden

  • Woodward RT, Wui YS (2001) The economic value of wetland services: a meta-analysis. Ecol Econ 37: 257–270

    Article  Google Scholar 

  • Yadav S (1997) Dynamic optimization of nitrogen use when groundwater contamination is internalized at the standard in the long run. Am J Agric Econ 79: 931–945

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Encarna Esteban.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Esteban, E., Dinar, A. Cooperative Management of Groundwater Resources in the Presence of Environmental Externalities. Environ Resource Econ 54, 443–469 (2013). https://doi.org/10.1007/s10640-012-9602-2

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10640-012-9602-2

Keywords

  • Cooperation
  • Non-cooperation
  • Externalities
  • Common-pool resources
  • Groundwater management
  • Ecosystem
  • Game theory
  • Shapley value
  • Nash-Harsanyi solution
  • Core
  • Public choice

JEL Classification

  • D62
  • D7
  • Q25
  • Q28