Groundwater management with heterogeneous users: Political and economic perspectives

There is a broad class of resource allocation problems caused by failures of existing markets. Addressing such problems requires both identifying appropriate incentive instruments for correcting the market failures and implementing those instruments. Because there is often a substantial difference between existing and economically Optimal allocations, implementation decisions are highly political and contentious. Water allocation issues are among the most politically contentious resource problems today. The legal evolution of water rights has often led to situations where water property rights are poorly defined, if they exist at all. Users have previously seen water as a freely available resource and rely heavily on that resource. Naturally, they are extremely resistant to calls for change and are highly concerned about the equity of any proposed reallocation. Groundwater allocation issues are compounded by a variety of additional problems including the common pool character of aquifers and the difficulty monitoring and enforcing legal pumping rights.;This dissertation focuses on the role of heterogeneity in the development of groundwater management policies. The model used by most economists to describe groundwater conditions assumes that aquifers are homogeneous throughout. Chapter 2 contrasts this with a more realistic hydrological model in which water levels vary by location, introducing heterogeneous impacts. The simple model is more likely to produce overestimates of the benefits of management. Since the simple model generally estimates that the gains from quantity management are small, spatial heterogeneity reinforces the conclusion that intervention is unlikely to be justified on the basis of aggregate welfare gains. As a result, it is critical to investigate the disaggregated welfare gains. Doing so demonstrates that there is significant regional variation in the costs and benefits of management, suggesting that political conflict over management decisions is likely to persist.;The political consequences of this regional variation are analyzed in Chapter 3. The analysis concludes that local collective action performs best when regional variation is small. Simulations suggest that large potential gains from groundwater quantity management are associated with large regional variation in those gains. The analysis demonstrates that the potential for local collective action to adequately resolve groundwater problems is severely compromised. In many cases, it will be necessary for another layer of government to either address groundwater problems itself or create the conditions needed for local action to be successful.;Chapter 4 continues the political economic analysis by focusing on a specific groundwater dispute. It constructs an integrated model of the economic, hydrological, and political characteristics of a groundwater allocation dispute in Spain's Guadiana basin. Local interests in this basin have thus far been unable to address their groundwater problems. The chapter uses a multi-stage model of devolution, focusing on the choices made by the Spanish national government as it cedes policy control to a heterogeneous group of local interests. The model identifies a set of political conditions under which policies leading to the stabilization of the Guadiana basin's aquifer are feasible.;The methodological approach adopted in this dissertation is multi-disciplinary, integrating economics, politics, and science. In any such modeling exercise, there is a trade-off between developing sufficiently realistic models of real-world policy problems and maintaining analytical tractability. To minimize the trade-off, this dissertation uses a technique from operations research known as response surface analysis. The approach combines numerical modeling of the more complex systems with the estimation of response surfaces that capture the essential conclusions of the numerical model in simple, closed-form equations. This approach enables analysis of a broader variety of questions than is possible with analytical modeling alone.